-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NJGIszisOzmVKmmwG9njJq0/WIvk5kONFGhC8mUWPsSzS6Z7n43H9SfZV3Jc4fZt hw942axmv/kXMxVHMAa7xQ== 0000898080-02-000244.txt : 20020807 0000898080-02-000244.hdr.sgml : 20020807 20020807172144 ACCESSION NUMBER: 0000898080-02-000244 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTISH ANNUITY & LIFE HOLDINGS LTD CENTRAL INDEX KEY: 0001064122 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16855 FILM NUMBER: 02722108 BUSINESS ADDRESS: STREET 1: GRAND PAVILION COMMERCIAL CENTRE STREET 2: 802 WEST BAY RD GEORGE TOWN GRAND CAYMAN CITY: GRAND CAYMAN CAYMAN STATE: E9 ZIP: 00000 BUSINESS PHONE: 3459492800 MAIL ADDRESS: STREET 1: GRAND PAVILION COMMERCIAL CENTRE STREET 2: 802 WEST BAY RD GEORGE TOWN CITY: GRAND CAYMAN CAYMAN STATE: E9 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: SCOTTISH LIFE HOLDINGS LTD DATE OF NAME CHANGE: 19980615 10-Q 1 form10q.txt FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from ____ to ______ Commission File Number 0-29788 SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. (Exact Name of Registrant as Specified in Its Charter) Cayman Islands 98-0362785 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) P.O. Box HM 2939 Crown House, Third Floor 4 Par-la-Ville Road Hamilton HM08 Bermuda Not Applicable (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (441) 295-4451 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of August 1, 2002, Registrant had 26,909,956 ordinary shares outstanding. Table of Contents PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - June 30, 2002 (Unaudited) and December 31, 2001 1 Unaudited Consolidated Statements of Income - Three and six months ended June 30, 2002 and 2001 2 Unaudited Consolidated Statements of Comprehensive Income - Six months ended June 30, 2002 and 2001 4 Unaudited Consolidated Statements of Shareholders' Equity - Six months ended June 30, 2002 and 2001 5 Unaudited Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and 2001 6 Notes to Unaudited Consolidated Financial Statements at June 30, 2002 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13 CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 27 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS 28 ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 28 ITEM 3 DEFAULTS UPON SENIOR SECURITIES 28 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28 ITEM 5 OTHER INFORMATION 29 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 29 SIGNATURES 32 i PART I. FINANCIAL INFORMATION Item 1. Financial Statements Scottish Annuity & Life Holdings, Ltd. Consolidated Balance Sheets (Dollars in thousands)
June 30, December 31, 2002 2001 (unaudited) -------------------- -------------------- ASSETS Fixed maturity investments, available for sale, at fair value (Amortized cost $697,183; 2001 - $588,542) $ 698,519 $ 583,890 Investment in unit-linked securities 19,299 20,705 Cash and cash equivalents 57,627 94,581 Policy loans 760 801 Other investments 9,949 10,120 Funds withheld at interest 879,555 562,446 -------------------- -------------------- Total investments 1,665,709 1,272,543 Amount receivable under Funding Agreement 100,000 - Receivables: Accrued interest 10,020 9,335 Risk fees 1,845 1,436 Reinsurance 54,860 59,221 Deferred acquisition costs 150,464 113,898 Amount recoverable from reinsurers 19,886 19,212 Present value of in-force business 19,303 20,383 Goodwill 32,246 30,970 Fixed assets 5,566 5,459 Due from related party 1,933 1,892 Other assets 7,923 8,764 Segregated assets 573,155 602,800 -------------------- -------------------- Total assets $2,642,910 $2,145,913 ==================== ==================== LIABILITIES Reserves for future policy benefits $ 382,297 $ 379,618 Interest sensitive contract liabilities 1,055,892 718,815 Unit-linked contract liabilities 20,139 25,503 Borrowings 22,331 65,145 Accounts payable and accrued expenses 10,750 12,532 Reinsurance payables 4,459 4,258 Other liabilities 2,802 - Current income tax payable 869 359 Deferred tax liability 6,053 5,601 Amount payable under Funding Agreement 100,000 - Segregated liabilities 573,155 602,800 -------------------- -------------------- Total liabilities 2,178,747 1,814,631 -------------------- -------------------- SHAREHOLDERS' EQUITY Share capital, par value $0.01 per ordinary share: Issued and fully paid: 26,909,956 ordinary shares (2001 - 20,144,956) 269 201 Additional paid-in capital 415,970 301,542 Accumulated other comprehensive income 4,264 (3,626) Retained earnings 43,660 33,165 -------------------- -------------------- Total shareholders' equity 464,163 331,282 -------------------- -------------------- Total liabilities and shareholders' equity $2,642,910 $2,145,913 ==================== ====================
See Accompanying Notes to Unaudited Consolidated Financial Statements 1 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Income (Dollars in thousands)
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- REVENUES Premiums earned $ 37,628 $ 11,311 $ 68,983 $ 20,830 Fee income 2,201 919 4,275 1,618 Investment income, net 26,147 10,515 47,877 22,262 Realized gains (losses) (1,815) 420 (3,279) 458 ------------------- ------------------ ------------------ ------------------- Total revenues 64,161 23,165 117,856 45,168 ------------------- ------------------ ------------------ ------------------- BENEFITS AND EXPENSES Claims and other policy benefits 26,656 10,292 50,543 17,626 Interest credited to interest sensitive contract liabilities 11,228 2,818 20,406 7,038 Acquisition costs and other insurance expenses, net 11,575 3,152 22,212 7,267 Operating expenses 6,632 2,412 10,976 5,043 Interest expense 138 314 482 314 ------------------- ------------------ ------------------ ------------------- Total benefits and expenses 56,229 18,988 104,619 37,288 ------------------- ------------------ ------------------ ------------------- Net income before income taxes and minority interest 7,932 4,177 13,237 7,880 Income tax benefit (expense) (83) 108 (390) 57 ------------------- ------------------ ------------------ ------------------- Net income before minority interest 7,849 4,285 12,847 7,937 Minority interest - 9 - 71 ------------------- ------------------ ------------------ ------------------- Income before cumulative effect of change in 7,849 4,294 12,847 8,008 accounting principle Cumulative effect of change in accounting principle - (406) - (406) ------------------- ------------------ ------------------ ------------------- Net income $ 7,849 $ 3,888 $ 12,847 $ 7,602 =================== ================== ================== ===================
See Accompanying Notes to Unaudited Consolidated Financial Statements 2 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Income (continued) (Dollars in thousands, except per share data)
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Earnings per ordinary share - Basic Net income before cumulative effect of change in accounting principle $0.29 $0.27 $0.55 $0.51 Cumulative effect of change in accounting principle - (0.02) - (0.02) ------------------- ------------------ ------------------ ------------------- Net Income $0.29 $0.25 $0.55 $0.49 =================== ================== ================== =================== Earnings per ordinary share -Diluted Net income before cumulative effect of change in accounting principle $0.28 $0.26 $0.51 $0.49 Cumulative effect of change in accounting principle - (0.02) - (0.02) ------------------- ------------------ ------------------ ------------------- Net Income $0.28 $0.24 $0.51 $0.47 =================== ================== ================== =================== Dividends per ordinary share $0.05 $0.05 $0.10 $0.10 =================== ================== ================== =================== Weighted average number of ordinary shares outstanding Basic 26,683,204 15,657,842 23,432,731 15,636,250 =================== ================== ================== =================== Diluted 28,504,230 16,246,309 24,946,671 16,191,632 =================== ================== ================== ===================
See Accompanying Notes to Unaudited Consolidated Financial Statements 3 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Comprehensive Income (Dollars in thousands)
Six months ended Six months ended June 30, 2002 June 30, 2001 ----------------------- ---------------------- Net income $12,847 $ 7,602 ----------------------- ---------------------- Other comprehensive income, net of tax Unrealized appreciation on investments: 4,878 2,159 Add: reclassification adjustment for investment losses included in net income 24 (457) ----------------------- ---------------------- Unrealized appreciation on investments net of income tax expense of $1,085 and $121 4,902 1,702 ----------------------- ---------------------- Cumulative translation adjustments 2,988 - ----------------------- ---------------------- Comprehensive income $20,737 $ 9,304 ======================= ======================
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Shareholders' Equity (Dollars in thousands)
Six months Six months ended ended June 30, 2002 June 30, 2001 ------------------- ------------------ ORDINARY SHARES Beginning of period 20,144,956 15,614,240 Ordinary shares issued 6,750,000 - Issuance to employees on exercise of options 15,000 - ------------------- ------------------ End of period 26,909,956 15,614,240 ------------------- ------------------ SHARE CAPITAL: Beginning of period $ 201 $ 156 Ordinary shares issued 67 - Issuance to employees on exercise of options 1 1 ------------------- ------------------ End of period 269 157 ------------------- ------------------ ADDITIONAL PAID-IN CAPITAL: Beginning of period 301,542 223,771 Ordinary shares issued 114,284 - Issuance to employees on exercise of options 144 1,298 ------------------- ------------------ End of period 415,970 225,069 ------------------- ------------------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Unrealized depreciation on investments Beginning of period (3,626) (3,822) Change in period (net of tax) 4,902 1,702 ------------------- ------------------ End of period 1,276 (2,120) ------------------- ------------------ Cumulative translation adjustment 2,988 - ------------------- ------------------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 4,264 (2,120) ------------------- ------------------ RETAINED EARNINGS: Beginning of period 33,165 19,459 Net income 12,847 7,602 Dividends paid (2,352) (1,566) ------------------- ------------------ End of period 43,660 25,495 ------------------- ------------------ TOTAL SHAREHOLDERS' EQUITY $464,163 $248,601 =================== ==================
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
Six months ended Six months ended June 30, 2002 June 30, 2001 --------------------- -------------------- OPERATING ACTIVITIES Net income $ 12,847 $ 8,008 Items not affecting cash: Net realized (gains) losses 3,279 (458) Amortization of investments 173 (637) Amortization of deferred acquisition costs 13,622 4,635 Amortization of present value of inforce business 1,401 103 Interest credited to interest sensitive contract liabilities 20,406 7,038 Changes in assets and liabilities: Accrued interest (685) 335 Risk fees (409) 2 Reinsurance receivables and payables 3,336 6,737 Deferred acquisition costs (50,188) (30,213) Deferred tax benefit 514 (432) Other assets (1,743) (603) Current income tax receivable and payable 510 375 Reserve for future policy benefits (430) 69,563 Unit linked contract liabilities (6,704) - Due from related party (41) - Accounts payable and accrued expenses (1,782) (13,133) Other 1,431 (546) --------------------- -------------------- Net cash provided by (used in) operating activities (4,463) 50,774 --------------------- -------------------- INVESTING ACTIVITIES Purchase of securities (218,605) (101,215) Proceeds from sales of investments 71,223 181,933 Proceeds from maturity of investments 41,677 38,924 Other assets and liabilities 5,386 (330) Funds withheld at interest (317,109) (31,123) Costs on acquisition of World-Wide (1,276) - Other investments 171 (12,119) Policy loans 41 (435) --------------------- -------------------- Net cash provided by (used in) investing activities (418,492) 75,635 --------------------- -------------------- FINANCING ACTIVITIES Deposits to interest sensitive contract liabilities 346,748 46,890 Withdrawals from interest sensitive contract liabilities (30,077) (198,990) Borrowings (42,814) 40,000 Issuance of ordinary shares 114,496 1,300 Dividends paid (2,352) (1,566) --------------------- -------------------- Net cash provided by (used in) financing activities 386,001 (112,366) --------------------- -------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (36,954) 14,043 Cash and cash equivalents, beginning of period 94,581 47,763 --------------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 57,627 $ 61,806 ===================== ====================
See Accompanying Notes to Unaudited Consolidated Financial Statements 6 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 1. General Scottish Annuity & Life Holdings, Ltd. is a holding company organized under the laws of the Cayman Islands with its principal executive office in Bermuda. We are a reinsurer of life insurance, annuities and annuity-type products. We have operating companies in Bermuda, the Cayman Islands, Ireland, Luxembourg, the United Kingdom and the United States. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the period are not necessarily indicative of the results to be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the period ended December 31, 2001. All amounts are reported in thousands of United States dollars (except per share amounts). Prior period amounts have been reclassified to conform to the current year presentation. 2. New accounting pronouncements In June 2001, the Financial Accounting Standards Board issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We have applied the new rules on accounting for goodwill and other intangible assets in this quarter. Goodwill recognized in the consolidated balance sheet has been assigned to reporting units. Goodwill was tested for impairment at June 30, 2002. There was no impairment in goodwill recognized on initial adoption. Our reported earnings and financial position for 2001 do not reflect significant amounts of amortization of goodwill. 3. Change in Accounting Principle EITF Issue No. 99-20("EITF 99-20"), "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", applies to all securities, purchased or retained, which represent beneficial interests in securitized assets, unless they meet certain exception criteria. Such securities include many collateralized mortgage, bond, debt and loan obligations (CMO, CBO, CDO and CLO), mortgage-backed securities and asset-backed securities. EITF 99-20 significantly changed the method of assessing "other than temporary impairments" and for recognizing interest income. A decline in fair value below the "amortized cost" basis is considered to be an other than temporary impairment whenever there is an adverse change in the amounts or timing of cash flows to be received, regardless of the resulting yield, unless the decrease is solely a result of changes in market interest rates. Interest income is based on prospective estimates of future cash flows. EITF 99-20 is effective for fiscal quarters beginning after March 15, 2001. We reviewed all applicable securities held at June 30, 2001, and identified a required write down in the amount of $406,000. This was shown in the consolidated statements of income as a cumulative effect of change in accounting principle. 4. Business acquisitions On December 31, 2001, we completed the purchase of World-Wide Holdings and its wholly owned subsidiary World-Wide Reassurance. The excess of the purchase price over net assets acquired was $32.2 million and is recorded as goodwill. Goodwill arising on the purchase of World-Wide has increased from $30.6 million at December 31, 2001 because of additional 7 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 costs of $1.6 million, relating to the acquisition, which were identified during the six months ended June 30, 2002. These costs were principally legal and other professional fees. Pro forma information related to our acquisition of World-Wide Holdings is prepared for the three and six-month periods ended June 30, 2001, and illustrates the effects of the acquisition as if it had occurred at the beginning of the period.
Scottish World-Wide Combined Scottish World-Wide Combined Annuity & Life Holdings(1) Annuity & Life Holdings(1) Holdings, Ltd. Holdings, Ltd. Three months ended June 30, 2001 Six months ended June 30, 2001 Revenues $23,165 $9,398 $32,563 $45,168 $ 17,895 $64,063 ================= ================ =============== ================= =============== ================ Income before cumulative effect of change in accounting principle $ 4,294 $ 517 $ 4,811 $8,008 $ 1,033 $ 9,041 Cumulative effect of change in accounting principle (406) - (406) (406) - (406) ----------------- ---------------- --------------- ----------------- --------------- ---------------- Net income $ 3,888 $ 517 $ 4,405 $7,602 $ 1,033 $ 8,635 ================= ================ =============== ================= =============== ================ Earnings per ordinary share - basic (2) Income before cumulative effect of change in accounting principle $0.27 $0.24 $0.51 $0.45 Cumulative effect of change in accounting principle (0.02) (0.02) (0.02) (0.02) ----------------- ---------------- --------------- ----------------- --------------- ---------------- Net income $0.25 $0.22 $0.49 $0.43 ================= ================ =============== ================= =============== ================ Earnings per ordinary share - diluted Income before cumulative effect of change in accounting principle $0.26 $0.23 $0.49 $0.44 Cumulative effect of change in accounting principle (0.02) (0.02) (0.02) (0.02) ----------------- ---------------- --------------- ----------------- --------------- ---------------- Net income $0.24 $0.21 $0.47 $0.42 ================= ================ =============== ================= =============== ================
(1) World-Wide Holdings includes pro forma adjustments. (2) Combined amounts are calculated using historical weighted average number of ordinary shares plus 4,532,380 ordinary shares issued to acquire World-Wide Holdings. 8 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 5. Business segments We report segments in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." Our main lines of business are Life Reinsurance and Wealth Management. The segment reporting for the lines of business is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------- ------------------- ------------------- REVENUES Life Reinsurance North America $48,050 $19,699 $87,116 $39,322 International 13,832 - 27,074 - ------------------- ------------------- ------------------- ------------------- Total Life Reinsurance 61,882 19,699 114,190 39,322 Wealth Management 850 663 1,547 1,274 Other 1,429 2,803 2,119 4,572 ------------------- ------------------- ------------------- ------------------- Total $64,161 $23,165 $117,856 $45,168 =================== =================== =================== =================== NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST Life Reinsurance North America $6,853 $2,587 $11,256 $5,628 International 2,725 - 4,458 - ------------------- ------------------- ------------------- ------------------- Total Life Reinsurance 9,578 2,587 15,714 5,628 Wealth Management (607) 375 (678) 608 Other (1,039) 1,215 (1,799) 1,644 ------------------- ------------------- ------------------- ------------------- Total $7,932 $4,177 $13,237 $7,880 =================== =================== =================== =================== June 30, 2002 December 31, 2001 --------------------- --------------------- ASSETS BY SEGMENT Life Reinsurance North America $1,735,125 $1,253,605 International 203,242 185,551 --------------------- --------------------- Total Life Reinsurance 1,938,367 1,439,156 Wealth Management 616,701 632,835 Other 87,842 78,363 --------------------- --------------------- Total $2,642,910 $2,150,354 ===================== =====================
9 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 6. Earnings per ordinary share The following table sets forth the computation of basic and diluted earnings per ordinary share:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------ ------------------ ------------------ ------------------ Numerator: Net income $7,849 $3,888 $12,847 $7,602 ================== ================== ================== ================== Denominator: Denominator for basic earnings per ordinary share - Weighted average number of ordinary shares 26,683,204 15,657,842 23,432,731 15,636,250 Effect of dilutive securities - Stock options 1,055,956 581,488 926,607 551,892 - Warrants 765,070 6,979 587,333 3,490 ------------------ ------------------ ------------------ ------------------ Denominator for dilutive earnings per ordinary share 28,504,230 6,246,309 24,946,671 16,191,632 ================== ================== ================== ================== Basic earnings per ordinary share $0.29 $0.25 $0.55 $0.49 ================== ================== ================== ================== Diluted earnings per ordinary share $0.28 $0.24 $0.51 $0.47 ================== ================== ================== ==================
7. Other investments Other investments are made up of a fund of funds that is carried at fair value of $4.9 million and a surplus note purchased from a U.S. life insurance company in connection with a reinsurance transaction that we entered into in the second quarter of 2001. The surplus note pays interest to us at an annual rate of 11%, matures on May 16, 2016 and is carried at cost of $5.0 million. 8. Funding Agreement Total assets and liabilities include $100 million in respect of a Funding Agreement (the "Agreement") that we entered into on June 28, 2002. The funds were received on July 5, 2002. The principal is to be repaid in five equal installments on December 28, 2006, March 28, 2007, June 28, 2007, September 28, 2007 and December 28, 2007. Interest is payable quarterly at LIBOR plus 0.525% commencing on September 28, 2002. The Agreement is collateralized by assets held in a trust that are managed in accordance with agreed investment guidelines. The market value of the assets in the trust is determined weekly and is compared to a required amount equal to the sum of the funded amount under the Agreement, including accrued interest, and over-collateralization based on the ratings of individual trust assets and our lowest financial strength rating from Moody's, Standard & Poor's and Fitch. We are required to deposit cash, eligible investments or provide a letter of credit if there is a deficit between the assets in the trust, including accrued interest, and the required amount. We may withdraw funds from the trust to the extent that the valuation of the trust assets is in excess of the required amount. 10 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 9. Reinsurance transactions The following table summarises the acquisitions of in-force reinsurance transactions completed by us during the quarter ended June 30, 2001. There were no acquisitions of in-force reinsurance transactions in 2002. These transactions are accounted for as purchases. Our results of operations include the effects of these purchases only from the respective acquisition dates. June 30, 2001 Fair value of assets acquired $58,928 Deferred acquisition costs 11,000 ---------------- Total assets acquired $69,928 ================ Fair value of liabilities acquired $69,928 ================ 10. Deferred acquisition costs The change in deferred acquisition costs is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Balance beginning of period $131,073 $36,620 $113,898 $30,922 Deferred acquisition costs on inforce blocks of business purchased - 11,000 - 11,000 Expenses deferred 25,694 10,389 48,354 19,213 Amortization expense (6,303) (1,509) (11,788) (4,635) ------------------- ------------------- ------------------- ------------------- Balance end of period $150,464 $56,500 $150,464 $56,500 =================== =================== =================== ===================
11. Borrowings We have in place a credit facility with a U.S. bank that provides a combination of borrowings and letters of credit totaling $50 million. This facility expires on July 31, 2003 but is renewable with the agreement of both parties. Borrowings are at a rate of LIBOR plus 40 basis points. At June 30, 2002 there were no borrowings or outstanding letters of credit under this facility. We are also in discussion with a U.S. bank for an additional credit facility providing a combination of borrowings and letters of credit totaling $50 million. We also have borrowings of $22.3 million in connection with a reverse repurchase agreement with a major broker/dealer. Under this agreement, we have sold agency mortgage backed securities with the agreement to repurchase them at a fixed price, providing the dealer with a spread that equates to an effective borrowing cost linked to one-month LIBOR. This agreement is renewable monthly at the discretion of the broker/dealer. At June 30, 2002 the one-month LIBOR rate applicable to borrowings was 1.83%. 11 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements June 30, 2002 12. Shareholders' equity On April 4, 2002, we completed a public offering of 6,750,000 ordinary shares (which included the over-allotment option of 750,000 ordinary shares) in which we raised aggregate net proceeds of $114.3 million. We have used the proceeds of the equity offering to repay short-term borrowings of $40 million and the remainder for general corporate purposes. 12 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Scottish Annuity & Life Holdings, Ltd., which we call Scottish Holdings, is a holding company organized under the laws of the Cayman Islands with its principal executive office in Bermuda. We are a reinsurer of life insurance, annuities and annuity-type products. These products are written by life insurance companies and other financial institutions located principally in the United States as well as around the world. We refer to this portion of our business as Life Reinsurance North America. On December 31, 2001 we completed the purchase of World-Wide Holdings Limited and its subsidiary World-Wide Reassurance Company Limited. World-Wide specializes in niche markets in developed countries and broader life insurance markets in the developing world. We refer to this portion of our business as Life Reinsurance International. To a lesser extent, we directly issue variable life insurance and variable annuities and similar products to high net worth individuals and families for insurance, investment and estate planning purposes. We refer to this portion of our business as Wealth Management. All amounts are reported in thousands of United States dollars, except per share amounts. Revenues We derive revenue from four principal sources: o premiums from reinsurance assumed on life business; o fee income from our variable life insurance and variable annuity products and from financial reinsurance transactions; o investment income from our investment portfolio; and o realized gains and losses from our investment portfolio. Premiums from reinsurance assumed on life business are included in revenues over the premium paying period of the underlying policies. When we acquire blocks of in-force business, we account for these transactions as purchases, and our results of operations include the net income from these blocks as of their respective dates of acquisition. Reinsurance assumed on annuity business does not generate premium income but generates investment income over time on the assets we receive from the ceding company. We also earn fees in our financial reinsurance transactions with U.S. insurance company clients. Because some of these transactions do not satisfy the risk transfer rules for reinsurance accounting, the premiums and benefits are not reported in the consolidated statements of income. In our Wealth Management business, when we sell a variable life insurance policy or a variable annuity contract, we charge mortality, expense and distribution risk fees that are based on total assets in each policyholder's separate account. In the case of variable life insurance policies, we also charge a cost of insurance fee based on the amount necessary to cover the death benefit under the policy. Our investment income includes interest earned on our fixed income investments and income from funds withheld at interest under modified coinsurance agreements. Under GAAP, because our fixed income investments are held as available for sale, these securities are carried at fair value, and unrealized appreciation and depreciation on these securities is not included in investment income on our statements of income, but is included in comprehensive income as a separate component of shareholders' equity. Realized gains and losses include gains and losses on investment securities that we sell during a period and write downs of securities deemed to be other than temporarily impaired. Expenses We have five principal types of expenses: o claims and policy benefits under our reinsurance contracts; o interest credited to interest sensitive contract liabilities; 13 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations o acquisition costs and other insurance expenses; o operating expenses; and o interest expense. When we issue a Life Reinsurance contract, we establish reserves for benefits. These reserves are our estimates of what we expect to pay in claims and policy benefits and related expenses under the contract or policy. From time to time, we may also add to reserves if our experience leads us to believe that benefit claims and expenses will ultimately be greater than the existing reserve. We report the provision for these reserves as an expense during the period when the reserve or additional reserve is established. In connection with reinsurance of annuity and annuity-type products, we record a liability for interest sensitive contract liabilities, which represents the amount ultimately due to the policyholder. We credit interest to these contracts each period at the rates determined in the underlying contract, and the amount is reported as interest credited to interest sensitive contract liabilities on our consolidated statements of income. A portion of the costs of acquiring new business, such as commissions, certain internal expenses related to our policy issuance and underwriting departments and some variable selling expenses are capitalized. The resulting deferred acquisition costs asset is amortized over future periods based on our expectations as to the emergence of future gross profits from the underlying contracts. These costs are dependent on the structure, size and type of business written. For certain products, we may retrospectively adjust our amortization when we revise our estimate of current or future gross profits to be realized. The effects of this adjustment are reflected in earnings in the period in which we revise our estimate. Operating expenses consist of salary and salary related expenses, legal and professional fees, rent and office expenses, travel and entertainment, directors' expenses, insurance and other similar expenses, except to the extent capitalized in deferred acquisition costs. Interest expense consists of interest charges on our borrowings. Factors affecting profitability We seek to generate profits from three principal sources. First, in our Life Reinsurance business, we seek to receive reinsurance premiums and financial reinsurance fees that, together with income from the assets in which those premiums are invested, exceed the amounts we ultimately pay as claims and policy benefits, acquisition costs and ceding commissions. Second, in our Wealth Management business, we seek to generate fee income that will exceed the expenses of maintaining and administering our variable life insurance and variable annuity products. Third, within our investment guidelines, we seek to maximize the return on our unallocated capital. The following factors affect our profitability: o the volume of business we write; o our ability to assess and price adequately for the risks we assume; o the mix of different types of business that we reinsure, because profits on some kinds of business emerge later than on other types; o our ability to manage our assets and liabilities to manage investment and liquidity risk; o the level of fees that we charge on our Wealth Management contracts; and o our ability to control expenses. In addition, our profits can be affected by a number of factors that are not within our control. For example, movements in interest rates can affect the volume of business that we write, the income earned from our investments, the interest we credit on interest sensitive contracts, the level of surrender activity on contracts that we reinsure and the rate at which we amortize deferred acquisition costs. Other external factors that can affect profitability include mortality experience that varies from our assumed mortality and changes in regulation or tax laws which may affect the attractiveness of our products or the costs of doing business. 14 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. We consider the following accounting policies critical in the preparation of our financial statements. Financial Accounting Standard 60 applies to traditional life policies with continuing premiums. For these policies, future benefits are estimated using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on anticipated experience, which, together with interest and expense assumptions, provide a margin for adverse deviation. Acquisition costs are deferred and recognized as expense in a constant percentage of the gross premiums using these assumptions established at issue. Should the liabilities for future policy benefits plus the present value of expected future gross premiums for a product be insufficient to provide for expected future benefits and expenses for that product, deferred acquisition costs will be written off and thereafter, if required, a premium deficiency reserve will be established by a charge to income. Changes in the assumptions for mortality, persistency and interest could result in material changes to the financial statements. Financial Accounting Standard 97 applies to investment contracts, limited premium contracts, and universal life-type contracts. For investment and universal life-type contracts, future benefit liabilities are held using the retrospective deposit method, increased for amounts representing unearned revenue or refundable policy charges. Acquisition costs are deferred and recognized as expense as a constant percentage of gross margins using assumptions as to mortality, persistency, and expense established at policy issue without provision for adverse deviation and are revised periodically to reflect emerging actual experience and any material changes in expected future experience. Liabilities and the deferral of acquisition costs are established for limited premium policies under the same practices as used for traditional life policies with the exception that any gross premium in excess of the net premium is deferred and recognized into income as a constant percentage of insurance in-force. Should the liabilities for future policy benefits plus the present value of expected future gross premiums for a product be insufficient to provide for expected future benefits and expenses for that product, deferred acquisition costs will be written off and thereafter, if required, a premium deficiency reserve will be established by a charge to income. Changes in the assumptions for mortality, persistency, maintenance expense and interest could result in material changes to the financial statements. The development of policy reserves and amortization of deferred acquisition costs for our products requires management to make estimates and assumptions regarding mortality, lapse, expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could differ materially from those estimates. Management monitors actual experience, and should circumstances warrant, will revise its assumptions and the related reserve estimates. Present value of in-force business is established upon the acquisition of a subsidiary and is amortized over the expected life of the business at the time of acquisition. The amortization each year will be a function of the gross profits or revenues each year in relation to the total gross profits or revenues expected over the life of the business, discounted at the assumed net credit rate. The determination of the initial value and the subsequent amortization require management to make estimates and assumptions regarding future business results that could differ materially from actual results. Estimates and assumptions involved in the present value of in-force business and subsequent amortization are similar to those necessary in the establishment of reserves and amortization of deferred acquisition costs. Goodwill is calculated as the difference between the price paid and the value of individual assets and liabilities on the date of acquisition of a subsidiary. In June 2001, the Financial Accounting Standards Board issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. We have applied the new rules in this quarter. We have performed the first of the required impairment tests and have determined that there is no goodwill impairment. Fixed maturity investments are evaluated for other than temporary impairments in accordance with SFAS 115 and EITF 99-20. Under these pronouncements, realized losses are recognized on securities if the securities are determined to be other than temporarily impaired. Factors involved in the determination of potential impairment include fair value as compared to cost, length of time to maturity, length of time the value has been below cost, credit worthiness of the issuer, 15 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations forecasted financial performance of the issuer, and interest rates. Changes in these factors could result in additional write-downs being necessary. Our accounting policies addressing reserves, deferred acquisition costs, value of business acquired, goodwill and investment impairment involve significant assumptions, judgments and estimates. Changes in these assumptions, judgments and estimates could create material changes in our consolidated financial statements. Results of Operations Our results of operations for the three and six month periods ended June 30, 2001 do not include the results of operations of World-Wide Holdings, which we acquired at the close of business on December 31, 2001. Earnings per ordinary share
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Net income $7,849 $3,888 $12,847 $7,602 =================== =================== =================== =================== Basic earnings per ordinary share $0.29 $0.25 $0.55 $0.49 =================== =================== =================== =================== Diluted earnings per ordinary share $0.28 $0.24 $0.51 $0.47 =================== =================== =================== =================== Weighted average number of ordinary shares outstanding: Basic 26,683,204 15,657,842 23,432,731 15,636,250 ------------------- ------------------- ------------------- ------------------- Diluted 28,504,230 16,246,309 24,946,671 16,191,632 ------------------- ------------------- ------------------- -------------------
Net income for the second quarter increased 100% to $7.8 million from $3.9 million in the same quarter in 2001. Net income for the six-month period ended June 30, 2002 increased 68% to $12.8 million from $7.6 million in the same period in 2001. The increases are attributable to the inclusion of World-Wide for the first time since its acquisition, continued growth in our Life Reinsurance North America segment, and an increase in investment income primarily due to the increase in average invested assets. These increases have been offset in part by an increase in realized losses on fixed maturity investments and unit-linked securities. The contribution to net income by World-Wide amounted to $2.1 million and $3.6 million for the three and six month periods, respectively. Earnings per ordinary share on a diluted basis amounted to $0.28 for the second quarter of 2002 in comparison with $0.24 in the same quarter in 2001. For the six-month period ended June 30, 2002 diluted earnings per share amounted to $0.51 in comparison with $0.47 per ordinary share in the same period in 2001. The increase in earnings per ordinary share was the result of increased net income which was offset by the increase in the number of ordinary shares outstanding as a result of the acquisition of World-Wide and the equity offering, discussed in Note 12 to the unaudited consolidated financial statements, and an increase in the dilutive effect of stock options and warrants. 16 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations
Three months ended Three months ended Six months ended Six months ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- GAAP net income $7,849 $3,888 $12,847 $7,602 Realized losses (gains) net of deferred acquisition costs - non taxable companies (641) (416) 537 (457) Realized losses net of deferred acquisition costs - taxable companies 2,247 - 2,769 - Provision for taxes - taxable companies (703) - (901) - Cumulative effect of change in accounting principle - 406 - 406 ------------------- ------------------ ------------------ ------------------- Net operating earnings $8,728 $3,878 $15,251 $7,551 =================== ================== ================== =================== Weighted average number of ordinary shares outstanding Basic 26,683,204 15,657,842 23,432,731 15,636,250 ------------------- ------------------ ------------------ ------------------- Diluted 28,504,230 16,246,309 24,946,671 16,191,632 ------------------- ------------------ ------------------ -------------------
We determine net operating earnings by adjusting GAAP net income for net realized capital gains and losses, as adjusted for the related effects upon the amortization of deferred acquisition costs and taxes, and non-recurring items that we believe are not indicative of overall operating trends. While these items may be significant components in understanding and assessing our consolidated financial performance, we believe the presentation of net operating earnings enhances the understanding of our results of operations by highlighting earnings attributable to the normal, recurring operations of our business. However, net operating earnings is not a substitute for net income determined in accordance with GAAP. Net operating earnings increased 123% to $8.7 million in the second quarter from $3.9 million in the same quarter in 2001. Net operating earnings for the six-month period ended June 30, 2002 increased 101% to $15.3 million from $7.6 million in the same period in 2001. The increase in net operating earnings is attributable to the inclusion of World-Wide for the first time since its acquisition, continued growth in our Life Reinsurance North America segment and an increase in investment income primarily due to the increase in average invested assets. Revenues Revenues increased by $40.9 million or 177% to $64.1 million in the second quarter of 2002 in comparison with the second quarter of 2001. During the six months ended June 30, 2002 revenues increased by $72.7 million or 161% to $117.9 million in comparison with 2001. The increases are primarily due to the acquisition of World-Wide, the growth in our Life Reinsurance North America operations and an increase in investment income primarily due to the growth in our invested assets resulting from new business and the equity offering discussed in Note 12 to the unaudited consolidated financial statements. 17 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues consist of the following:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Premiums earned $37,628 $11,311 $68,983 $20,830 Fee income 2,201 919 4,275 1,618 Investment income, net 26,147 10,515 47,877 22,262 Realized gains (losses) (1,815) 420 (3,279) 458 ------------------ ------------------- ------------------- ------------------- Total revenues $64,161 $23,165 $117,856 $45,168 ================== =================== =================== ===================
Premiums earned Premiums earned during the second quarter increased 233% to $37.6 million compared with the same quarter in 2001. Premiums earned during the six-month period ended June 30, 2002 increased 231% to $69.0 million compared with the prior year period. World-Wide's premiums earned amounted to $14.2 million and $26.4 million, respectively, during those periods. Premiums earned on Life Reinsurance North America operations increased by 107% to $23.4 million and were from 53 clients. Premiums earned on Life Reinsurance North America operations during the six-month period ended June 30, 2002 increased 105% to $42.6 million. Premiums earned in the second quarter and first six months of 2001 were from 27 reinsurance clients and premiums from a run-off block of Accident & Health Business written by Scottish Re before we acquired the company. As of June 30, 2002 we reinsured approximately $49.0 billion of life coverage on 1,252,000 lives in our North American operations. Our average benefit coverage per life is $39,000 and our targeted maximum corporate retention on any one life is $500,000. As of June 30, 2001 we reinsured approximately $21.4 billion of life coverage on 749,000 lives. Our average benefit coverage per life was $29,000. Fee income Both Life Reinsurance and Wealth Management business generate fee income. In Life Reinsurance we earn fees on our financial reinsurance treaties that do not qualify under risk transfer rules for reinsurance accounting. Life Reinsurance fees increased by 414% to $1.3 million and by 656% to $2.6 million during second quarter and first six months of 2002 compared to the same periods in 2001. The increase is due to the growth in the number of clients. Wealth Management fees increased in the second quarter of 2002 by 33% to $0.9 and by 31% to $1.7 million during the first six months compared to the same periods in 2001. The increase is primarily due to increases in variable account balances on which we earn fees and an increase in the number of clients. 18 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Fees earned are as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------- ------------------ ------------------- Life Reinsurance North America $1,316 $256 $2,609 $ 345 Wealth Management 885 662 1,666 1,273 ------------------- ------------------- ------------------- ------------------- Total $2,201 $918 $4,275 $1,618 =================== =================== =================== ===================
Wealth Management fees are earned from both life and annuity clients. The following table summarizes our client base with the associated segregated asset values and policy face amounts.
June 30, 2002 March 31, 2002 December 31, 2001 June 30, 2001 ---------------- ----------------- ---------------- ---------------- Number of clients - Life 47 43 42 25 - Annuity 93 91 90 84 ---------------- ----------------- ---------------- ---------------- 140 134 132 109 ================ ================= ================ ================ Segregated asset value - Life $122,000 $130,600 $134,800 $ 93,340 - Annuity 451,150 473,000 468,000 427,230 ---------------- ----------------- ---------------- ---------------- $573,150 $603,600 602,800 $520,570 ================ ================= ================ ================ Face value - Life $914,540 $843,112 $812,380 $457,886 ================ ================= ================ ================
The change in the segregated assets is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Balance at beginning of period $603,600 $460,719 $602,800 $409,660 Deposits 7,607 46,925 11,807 109,124 Withdrawals - (6,915) (650) (8,215) Investment performance (1) (38,052) 19,841 (40,802) 10,001 ------------------- ------------------- ------------------- ------------------- Balance end of period $573,155 $520,570 $573,155 $520,570 =================== =================== =================== ===================
(1) Investment performance for the period is determined using actual asset valuations where available and estimates where actual data is not available. Investment income Net investment income increased by $15.6 million or 149% to $26.1 million in the second quarter of 2002 compared to $10.5 million in the second quarter of 2001 and by $25.6 million or 115% to $47.9 million during the first six months of 2002 compared to $22.3 million in the same period in 2001. The increase in net investment income for each period of 2002 over the comparable period in 2002 is attributable to an increase in our average invested assets and funds withheld at interest in our North American operations, the inclusion of World-Wide's net investment income for the first time since we acquired World-Wide on December 31, 2001, and the net proceeds of the equity offering of $114.3 million. Fixed maturity investments have increased from $463.9 million at June 30, 2001 to $698.5 million at June 30, 2002. Funds withheld by ceding insurers at interest amounted to $879.6 million at June 30, 2002 in comparison with $77.4 million at June 30, 2001. The World-Wide fixed income portfolio totaled $93.0 million as of June 30, 2002. 19 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations The growth in average invested assets has been offset by a decline due to the recapture by a ceding company of $185.7 million of assets on April 30, 2001. During the second quarter of 2002 and the first six months of 2002, average book yields were lower, particularly on floating rate assets and cash than in the same periods in 2001. Yields on floating rate assets move with LIBOR, which has decreased significantly. On the $643.7 million portfolio managed by General Re - New England Asset Management Inc. ("NEAM"), the yields on fixed rate assets were 6.3% and 6.9% at June 30, 2002 and 2001, respectively. Between those dates, however, LIBOR decreased to 1.8% from 3.8%, causing the yield on our floating rate assets to decrease to 3.7% from 6.6% and the yield on our cash and cash equivalents to decrease to 1.8% from 3.4%. Since floating rate liabilities funded the floating rate assets, the decrease in yield on assets had no material effect on earned margins. The split of investment income by segment is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Life Reinsurance - North America $23,157 $8,210 $42,683 $18,190 - International 1,705 - 3,108 - Wealth Management (35) - (119) 2 Other (1) 1,320 2,305 2,205 4,070 ------------------- ------------------- ------------------- ------------------- Total $26,147 $10,515 $47,877 $22,262 =================== =================== =================== ===================
(1) Other includes investment income on unallocated capital. Realized gains (losses) In the second quarter of 2002, realized losses on investments amounted to $1.8 million compared to a realized gain of $420,000 in the second quarter of 2001. During the first six months realized losses amounted to $3.3 million in comparison with gains of $458,000 in the first six months of 2001. These losses comprise realized investment losses on unit-linked securities held by World-Wide and impairment losses recognized under EITF Issue No. 99-20, offset by net gains on fixed maturity investments. Under EITF 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", a decline in fair value below "amortized cost" basis is considered to be an other than temporary impairment whenever there is an adverse change in the amount or timing of cash flows to be received, regardless of the resulting yield, unless the decrease is solely a result of changes in market interest rates. Unit-linked securities are comprised of investments in a unit trust denominated in British pounds. These investments were acquired as part of the purchase of World-Wide and are recorded at quoted market value. Changes in market value are recorded as net realized gains. The investment results of the unit-linked securities are generally passed on to the policyholder. 20 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Benefits and expenses
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Claims and other policy benefits $26,656 $10,292 $50,543 $17,626 Interest credited to interest sensitive contract liabilities 11,228 2,818 20,406 7,038 Acquisition costs and other insurance expenses 11,575 3,152 22,212 7,267 Operating expenses 6,632 2,412 10,976 5,043 Interest expense 138 314 482 314 ------------------- ------------------- ------------------- ------------------- Total benefits and expenses $56,229 $18,988 $104,619 $37,288 =================== =================== =================== ===================
Claims and other policy benefits Claims and other policy benefits increased by 159% to $26.7 million in the second quarter of 2002 from $10.3 million in 2001 and by 187% to $50.6 million in the first six months from $17.6 million in 2001. The increase is a result of the acquisition of World-Wide, the increased number of clients and the increase in business from these clients in our Life Reinsurance North America operations. Claims and policyholder benefits in respect of World-Wide were $9.2 million and $17.4 million, respectively, for the second quarter and first six months of 2002. Interest credited to interest sensitive contract liabilities Interest credited to interest sensitive contract liabilities increased by $8.4 million or 298% to $11.2 million for the second quarter of 2002 from $2.8 million in 2001. For the first six months interest credited to interest sensitive contract liabilities increased by $13.4 million or 190% to $20.4 million from $7.0 million in 2001. The increase was due to interest credited on new 2002 reinsurance treaties and increases in interest credited to policies which commenced in 2002 and 2001 due to increasing average liability balances. Acquisition costs and other insurance expenses Acquisition costs and other insurance expenses increased by $8.4 million or 267% to $11.6 million in the second quarter of 2002 from $3.1 million in 2001. During the first six months of 2002 acquisition costs and other insurance expenses increased by $14.9 million or 206% to $22.2 million from $7.3 million in 2001. The increases were a result of the acquisition of World-Wide, the increased number of reinsurance clients in our Life Reinsurance business and the increase in premiums earned over the last two years. 21 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations The components of these expenses are as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Commissions, excise taxes and other insurance expenses $29,786 $11,980 $56,877 $21,742 Deferral of expenses (27,027) (10,388) (49,688) (19,213) ------------------- ------------------- ------------------- ------------------- 2,759 1,592 7,189 2,529 Amortization - Present value of in-force business 679 51 1,401 103 Amortization - Deferred acquisition costs 8,137 1,509 13,622 4,635 ------------------- ------------------- ------------------- ------------------- Total $11,575 $ 3,152 $22,212 $ 7,267 =================== =================== =================== ===================
Commissions and excise taxes vary with premiums earned. Other insurance expenses include direct and indirect expenses of those departments involved in the marketing, underwriting and issuing of reinsurance treaties. In 2002 we have allocated less of these expenses to acquisition costs than in 2001. They are now included in operating expenses. Of these total expenses a portion is deferred and amortized over the life of the reinsurance treaty or in relation to the estimated gross profit in respect of our interest sensitive contracts. The split of these expenses between segments is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Life Reinsurance - North America $10,487 $2,974 $19,025 $6,952 - International 139 - 1,674 - Wealth Management 949 178 1,513 315 ------------------- ------------------- ------------------- ------------------- Total $11,575 $3,152 $22,212 $7,267 =================== =================== =================== ===================
22 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating expenses Operating expenses increased to $6.6 million for the second quarter of 2002 compared to $2.4 million in the second quarter of 2001 and to $11.0 million in the first six months of 2002 compared to $5.0 million in the same period in 2001. The increase is a result of the acquisition of World-Wide, less costs being allocated in 2002 to acquisition expenses as they relate to marketing, underwriting and policy and treaty issuance and increased personnel costs and legal and professional fees due to the growth in our business. The split of these expenses between segments is as follows:
Three months Three months Six months Six months ended ended ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------------- ------------------ ------------------ ------------------- Life Reinsurance - North America $2,021 $1,029 $3,374 $2,078 - International 1,767 - 3,454 - Wealth Management 508 110 711 352 Other 2,336 1,273 3,437 2,613 ------------------- ------------------- ------------------- ------------------- Total $6,632 $2,412 $10,976 $5,043 =================== =================== =================== ===================
Other operating expenses include salaries, head office expenses, legal and professional fees and other expenses not related to either our Life Reinsurance or Wealth Management lines of business. Interest expense We incurred interest expense of $138,000 during the second quarter as compared with $314,000 in 2001 reflecting the use of borrowings as described in Note 11 to the unaudited consolidated financial statements. Interest expense for the six months ended June 30, 2002 amounted to $482,000 in comparison with $314,000 in 2001. Income taxes The 2002 income tax expense includes taxes on the earnings of Scottish Re (U.S.), Inc., Scottish Annuity & Life International Insurance Company (Bermuda) Ltd., World-Wide Reassurance Company Limited and Scottish Re (Dublin) Limited. In 2001, the income tax expense was offset by a release of capital loss carry-forwards. Minority interest We now own 100% of Scottish Annuity & Life Holdings (Bermuda) Limited (formerly Scottish Crown Group (Bermuda) Ltd.). In July 2001 we acquired the remaining 49.99% of Scottish Annuity & Life Holdings (Bermuda) Limited that we did not own, and thereby eliminated the minority interest position. Financial Condition Investments At June 30, 2002 the portfolio controlled by us consisted of $756.1 million of fixed income securities and cash. Of this total $643.6 million represented the fixed income portfolio controlled by NEAM, $93.1 million represented investments of World-Wide, which have historically been managed internally, and $19.5 million represented other cash balances. At June 30, 2002, the portion of the portfolio managed by NEAM had an average Standard & Poor's rating of "AA-", an average effective duration of 3.9 years and an average book yield of 5.98% as compared with an average rating of "A+", an 23 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations average effective duration of 3.5 years and an average book yield of 6.14% at December 31, 2001. At June 30, 2002 the portion of the investment portfolio managed by World-Wide had an average rating of "AA-", an average duration of 2.8 years and an average book yield of 5.66% as compared with an average rating of "AA-", an average duration of 1.9 years and an average book yield of 5.22% at December 31, 2001. At June 30, 2002 the unrealized appreciation on investments, net of tax was $1.3 million as compared with depreciation of $3.6 million at December 31, 2001. These amounts are included on our consolidated balance sheets as part of shareholders' equity. At June 30, 2002 funds withheld at interest totaled $879.6 million with an average rating of "A", an average duration of 5.8 years and an average book yield of 6.68% as compared with an average rating of "A-", an average duration of 6.0 years and an average book yield of 6.80% at December 31, 2001. These are fixed income investments associated with modified coinsurance transactions and include marketable securities, commercial mortgages and private placements. The market value of the funds withheld amounted to $892.2 million at June 30, 2002. Liquidity and Capital Resources Cash flow Cash flow from operations for the six-month period ended June 30, 2002 was a negative of $4.4 million compared to $50.8 million in the prior year period. The positive cash flow of $50.8 million in the first six months of 2001 arose principally as a result of the acquisition of the assets of $58.9 million on the in-force reinsurance transaction discussed in Note 9 to the unaudited consolidated financial statements. There have been no acquisitions of in-force business in 2002. Although premiums written and renewal premiums received in the first half of the year are typically lower than the later period, causing reduced cash flows, the payment of claims and operating expenses continue on a more level basis throughout the year. Our cash flow from operations may be positive or negative in any period depending on the amount of new Life Reinsurance business written, the level of ceding commissions paid in connection with writing that business and the level of renewal premiums earned in that period. Capital and collateral At June 30, 2002, total capitalization was $464.2 million compared to $331.3 million at December 31, 2001. The increase in capitalization at June 30, 2002 is due to the proceeds of the equity offering of $114.3 million discussed in Note 12 to the unaudited consolidated financial statements, the increase in unrealized appreciation of investments, the cumulative translation adjustment, and net earnings for the period less dividends. On April 4, 2002, we completed a public offering of 6,750,000 ordinary shares (which included the over-allotment option of 750,000 ordinary shares) in which we raised aggregate net proceeds of approximately $114.3 million. We have used the proceeds of the offering to repay short-term borrowings of $40 million and for general corporate purposes. During the second quarter, we paid dividends totaling $0.05 per share or $1.4 million for a total of $0.10 per share or $2.4 million for the first six months of 2001. We have in place a credit facility with a U.S. bank that provides a combination of borrowings and letters of credit totaling $50 million. This facility expires on July 31, 2003 but is renewable with the agreement of both parties. Borrowings are at a rate of LIBOR plus 40 basis points. At June 30, 2002 there were no borrowings or outstanding letters of credit under this facility. We are also in discussion with a U.S. bank for an additional credit facility providing a combination of borrowings and letters of credit totaling $50 million. We have also borrowed $22.3 million ($25.1 million at December 31, 2001) under a reverse repurchase agreement with a major broker/dealer. Under this agreement, we have sold agency mortgage backed securities with the agreement to repurchase them at a fixed price, providing the dealer with a spread that equates to an effective borrowing cost linked to one-month LIBOR. This agreement is renewable monthly at the discretion of the broker/dealer. 24 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Total assets and liabilities include $100 million in respect of a Funding Agreement (the "Agreement") that we entered into on June 28, 2002. The funds were received on July 5, 2002. The principal is to be repaid in five equal installments on December 28, 2006, March 28, 2007, June 28, 2007, September 28, 2007 and December 28, 2007. Interest is payable quarterly at LIBOR plus 0.525% commencing on September 28, 2002. The Agreement is collateralized by assets held in a trust that are managed in accordance with agreed investment guidelines. The market value of the assets in the trust is determined weekly and is compared to a required amount equal to the sum of the funded amount under the Agreement, including accrued interest and over-collateralization based on the ratings of individual trust assets and our lowest financial strength rating from Moody's, Standard & Poor's and Fitch. We are required to deposit cash, eligible investments or provide a letter of credit if there is a deficit between the assets in the trust, including accrued interest, and the required amount. We may withdraw funds from the trust to the extent that the valuation of the trust assets is in excess of the required amount. We must have sufficient assets available for use as collateral to support borrowings, letters of credit and certain reinsurance transactions. With these reinsurance transactions, the need for collateral letters of credit arises in four ways: o When Scottish Annuity & Life Insurance Company (Cayman) Ltd. enters into a reinsurance treaty with a U.S. customer, it must pledge assets into a reserve credit trust with a U.S. bank in order that the ceding company may obtain reserve credit for the reinsurance transaction; in some cases, a letter of credit may be substituted for all or a portion of a reserve credit trust; o When Scottish Re (U.S.), Inc. enters into a reinsurance transaction, it typically incurs a need for additional statutory capital; this need can be met by its own capital and surplus, an infusion of cash or assets from Scottish Annuity & Life Insurance Company (Cayman) Ltd. or by ceding a portion of the transaction to another company within the group or an unrelated reinsurance company, in which case that reinsurer must provide reserve credit by pledging assets in a reserve credit trust or pledging assets to a bank to support a letter of credit; o Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to write reinsurance in 47 states and the District of Columbia. When Scottish Re (U.S.), Inc. enters into a reinsurance transaction with a customer domiciled in a state in which it is not licensed, accredited, authorized or approved reinsurer, it likewise must provide a reserve credit trust or letter of credit; and o Even when Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to write reinsurance in the state, it may agree with a customer to provide a reserve credit trust or letter of credit voluntarily to mitigate the counter-party risk from the customer's perspective, thereby doing transactions that would be otherwise unavailable or would be available only on significantly less attractive terms; such a requirement most often arises in connection with interest-sensitive liabilities. Scottish Annuity & Life Insurance Company (Cayman) Ltd. has agreed with Scottish Re (U.S.), Inc. that it will (1) cause Scottish Re (U.S.), Inc. to maintain capital and surplus equal to the greater of $20.0 million or such amount necessary to prevent the occurrence of a Company Action Level Event under the risk-based capital laws of the State of Delaware and (2) provide Scottish Re (U.S.), Inc. with enough liquidity to meet its obligations in a timely manner. In addition, Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Holdings have agreed with World-Wide Reassurance that in the event World-Wide Reassurance is unable to meet its obligations under its insurance and reinsurance agreements, Scottish Annuity & Life Insurance Company (Cayman) Ltd. (or if Scottish Annuity & Life Insurance Company (Cayman) Ltd. cannot fulfill such obligations, then Scottish Holdings) will indemnify World-Wide Reassurance for all of its obligations under such agreements. Scottish Holdings and Scottish Annuity & Life Insurance Company (Cayman) Ltd. may, from time to time, execute additional agreements guaranteeing the performance and/or obligations of their subsidiaries. While we believe that we have sufficient assets available in the short term to support our liquidity and letter of credit needs, we may need to raise additional capital and/or find alternative assets or unsecured letters of credit to continue to grow. We expect that our cash and investments, together with cash generated from our businesses, will provide sufficient sources of liquidity to meet our current needs. However, if our business continues to grow significantly, we will need to raise additional capital. 25 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Off balance sheet arrangements We have no obligations, assets or liabilities other than those disclosed in the financial statements; no trading activities involving non-exchange traded contracts accounted for at fair value; and no relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties. Changes in Accounting Standards In June 2001, the Financial Accounting Standards Board issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We have applied the new rules on accounting for goodwill and other intangible assets in this quarter. Goodwill of $32.3 million arose on the acquisition of World-Wide at December 31, 2001. We have performed the first of the required impairment tests of goodwill and have determined that there is no goodwill impairment. Our reported earnings and financial position for 2001 do not reflect significant amounts of amortization of goodwill. Forward-Looking Statements Some of the statements contained in this report are not historical facts and are forward-looking within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from the forward-looking statements. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "will", "continue", "project", and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include: o Uncertainties relating to the ratings accorded to our insurance subsidiaries; o Uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in additional jurisdictions); o Exposure to mortality experience which differs from our assumptions; o Uncertainties arising from control of our assets by third parties; o The risk that our risk analysis and underwriting may be inadequate; o Risks arising from our investment strategy, including risks related to market value of our investments, fluctuations in interest rates and our need for liquidity; o The risk that our retrocessionaires may not honor their obligations to us; o Changes in capital needs; o The impact of acquisitions, including the ability to successfully integrate acquired businesses, the competing demands for our capital and the risk of undisclosed liabilities; o Loss of the service of any of our key employees; o Changes in accounting principles; o Terrorist attacks on the United States and the impact of such attacks on the economy in general and on our business in particular; o Political and economic risks in developing countries; o Losses due to foreign currency rate fluctuations; o Changes in the rate of policyholder withdrawals or recapture of reinsurance treaties; o The competitive environment in which we operate and associated pricing pressures; and o Developments in global financial markets that could affect our investment portfolio and fee income. 26 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations The effects of these factors are difficult to predict. New factors emerge from time to time and we cannot assess the financial impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward looking statement. Any forward looking statement speaks only as of the date of this report and we do not undertake any obligation to update any forward looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of unanticipated events. Risk Factors of Investing in Our Ordinary Shares Investing in our ordinary shares involves a high degree of risk. Prior to investing in the ordinary shares, potential investors should consider carefully the risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, in addition to the other information set forth in this Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes since December 31, 2001. Please refer to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K. 27 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any material litigation or arbitration. Item 2. Changes in Securities and Use of Proceeds On April 4, 2002, the Company completed a public offering of 6,750,000 ordinary shares (Commission File Numbers 333-83696 and 333-85548), which included the over-allotment option of 750,000 ordinary shares, for an aggregate offering price of $123 million. After deducting estimated expenses of $9 million, the Company raised aggregate net proceeds of approximately $114 million. The managing underwriters were Bear, Stearns & Co. Inc., Putnam Lovell Securities Inc., Fox-Pitt, Kelton and Keefe Bruyette & Woods, Inc. The Company has used the proceeds of the offering to repay short term borrowings of $40 million and will use the remainder for general corporate purposes. Item 3. Default Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Securities Holders The 2002 Annual Meeting of Shareholders of the Company was held on May 2, 2002. The following items of business were presented to the shareholders of the Company (the "Shareholders"): Election of Directors The results of the vote of the Shareholders with respect to the three Class I Directors, one Class II Director and one Class III Director were elected as proposed in the Proxy Statement dated April 1, 2002 under the caption titled "Proposal for Election of Directors" were as follows: Total Vote Total Vote For Withheld From Name Each Director Each Director Class I Directors G. William Caulfield-Browne 16,995,096 225,700 Robert M. Chmely 16,992,496 288,300 Glenn S. Schafer 16,992,196 288,600 Class II Directors Lord Norman Lamont 16,774,446 446,350 Class III Director Khanh T. Tran 16,768,346 452,450 28 Amendments to the Articles of Association The Articles of Association were amended as proposed in the Proxy Statement dated April 1, 2002 under the caption titled "Amendments to the Articles of Association" to make technical amendments to Article 9 of the Articles of Association to conform to the Company's recent listing on the New York Stock Exchange. The results of the vote of the Shareholders with respect to the amendments to the Articles of Association were as follows: For: 16,713,482 Against: 481,814 Abstain: 25,500 Ratification of Independent Auditors The Board of Directors has selected, based upon the recommendation of the Audit Committee, Ernst & Young, as the independent auditors for the Company for the fiscal year ending December 31, 2002. The results of the vote of the Shareholders with respect to this selection were as follows: For: 17,149,546 Against: 69,550 Abstain: 1,700 Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Except as otherwise indicated, the following Exhibits are filed herewith and made a part hereof: Exhibit Description of Document Number 3.1 Memorandum of Association of the Company, as amended as of December 14, 2001 (incorporated herein by reference to the Company's Current Report on Form 8-K/A).(6) 3.2 Articles of Association of the Company, as amended as of December 14, 2001 (incorporated herein by reference to the Company's Current Report on Form 8-K/A).(6) 4.1 Specimen Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Company's registration Statement on Form S-1).(1) 4.2 Form of Amended and Restated Class A Warrant (incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1).(1) 4.3 Form of Amended and Restated Class B Warrant (incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1).(1) 4.4 Form of Securities Purchase Agreement for the Class A Warrants (incorporated herein by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-1).(1) 29 4.5 Form of Warrant Purchase Agreement for the Class B Warrants (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-1).(1) 4.6 Form of Securities Purchase Agreement between the Company and the Shareholder Investors (incorporated herein by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-1).(1) 4.7 Form of Securities Purchase Agreement between the Company and the Non-Shareholder Investors (incorporated herein by reference to Exhibit 4.12 to the Company's Registration Statement on Form S-1).(1) 10.1 Employment Agreement dated June 18, 1998 between the Company and Michael C. French (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1).(1) 10.2 Second Amended and Restated 1998 Stock Option Plan effective October 22, 1998 (incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1).(1) 10.3 Form of Stock Option Agreement in connection with 1998 Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1).(1) 10.4 Investment Management Agreement dated October 22, 1998 between the Company and General Re-New England Asset Management, Inc. (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1).(1) 10.5 Form of Omnibus Registration Rights Agreement (incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1).(1) 10.6 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to the Company's 1999 Annual Report on Form 10-K).(2) 10.7 Form of Stock Options Agreement in connection with 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.15 to the Company's 1999 Annual Report on Form 10-K).(2) 10.8 Employment Agreement dated September 18, 2000 between the Company and Oscar R. Scofield (incorporated herein by reference to Exhibit 10.16 to the Company's 2000 Annual Report on Form 10-K).(3) 10.9 Share Purchase Agreement by and between the Company and Pacific Life Insurance Company dated August 6, 2001 (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on August 9, 2001). 10.10 Amendment No. 1, dated November 8, 2001, to Share Purchase Agreement dated August 2001 by and between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.11 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to the Company's 2001 Annual Report on Form 10-K).(4) 30 10.12 Form of Nonqualified Stock Option Agreement in connection with 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.18 to the Company's 2001 Annual Report on Form 10-K).(4) 10.13 Service Agreement dated December 31, 2001 between World-Wide Holdings, Paul Andrew Bispham and the Company (incorporated herein by reference to Exhibit 10.19 to the Company's 2001 Annual Report on Form 10-K).(4) 10.14 Registration Rights Agreement dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.15 Stockholder Agreement dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.16 Tax Deed of Covenant dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.17 Letter Agreement dated December 28, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.18 Form of Indemnification Agreement between the Company and each of its directors and officers. 10.19 Employment Agreement dated July 1,2002 between Scottish Annuity & Life International Insurance Company (Bermuda) Ltd. and Steven A. Helland. 10.20 Employment Agreement dated July 1,2002 between Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Thomas A. McAvity, Jr. 10.21 Employment Agreement dated June 3, 2002 between Scottish Re (U.S.), Inc. and James Clayton Moye, III. 10.22 Employment Agreement dated June 1, 2002 between the Company and Elizabeth Murphy. 10.23 Employment Agreement dated June 1, 2002 between the Company and Clifford J. Wagner. 10.24 Employment Agreement dated July 8, 2002 between the Company and Scott E. Willkomm. 10.25 Employment Agreement dated May 29, 2002 between Scottish Re (U.S.), Inc. and Larry N. Stern. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31 (1) The Company's Registration Statement on Form S-1 was filed with the Securities and Exchange Commission on June 19, 1998, as amended. (2) The Company's 1999 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on April 3, 2000. (3) The Company's 2000 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 30, 2001. (4) The Company's 2001 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 5, 2002. (5) The Company's Current Report on Form 8-K was filed with the Securities and Exchange Commission on December 31, 2001. (6) The Company's Current Report on Form 8-K/A was filed with the Securities and Exchange Commission on January 11, 2002. B. Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the three month period ended June 30, 2002. 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. SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Date: August 7, 2002 By: /s/ Scott E. Willkomm Scott E. Willkomm President Date: August 7, 2002 By: /s/ Elizabeth A. Murphy Elizabeth A. Murphy Chief Financial Officer EX-10.4 3 ex104.txt Form of INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT, dated as of [insert date] (this "Agreement"), is made and entered into by and between Scottish Annuity & Life Holdings, Ltd., a Cayman Islands company (the "Company"), and ____________________ ("Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available; WHEREAS, Indemnitee is a director, officer, [employee and/or agent] of the Company; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors, officers, [employees and/or agents] of companies in today's environment; WHEREAS, the Company's Articles of Association (the "Articles") provide that the Company will indemnify its directors, officers, [employees and/or agents] to the fullest extent permitted by law and will advance expenses in connection therewith, and Indemnitee's willingness to serve as a director, officer, [employee and/or agent] of the Company is based in part on Indemnitee's reliance on such provisions; and WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, and Indemnitee's reliance on the aforesaid provisions of the Articles, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such provisions will be available to Indemnitee regardless of, among other things, any amendment to or revocation of such provisions or any change in the composition of the Company's Board of Directors or any acquisition or business combination transaction relating to the Company, the Company wishes to provide in this Agreement for the indemnification of and the advancement of expenses to Indemnitee as set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto hereby agree as follows: 1. Certain Definitions. 1.1 Claim. The term "Claim" shall mean any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative (including, without limitation, an action by or in the right of the Company) or other. 1.2 Indemnifiable Event. The term "Indemnifiable Event" shall mean any actual or asserted event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent, or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust, or other entity, or anything done or not done by Indemnitee in any such capacity. 2. Basic Indemnification Arrangement. (a) The Company shall indemnify, in accordance with and to the fullest extent permitted by the laws of the State of New York in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, Indemnitee who was or is a party or is threatened to be made a party to any Claim by reason of (or arising in whole or in part out of) an Indemnifiable Event, against any liability or expense actually and reasonably incurred, including, without limitation, attorney's fees and other fees and expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any such attorneys' fees and other fees and expenses, judgments, fines or amounts paid in settlement) by Indemnitee in connection with such Claim or any appeal therefrom, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Company, and, with respect to any criminal action, proceeding or investigation, had no reasonable cause to believe his or her conduct was unlawful. (b) In the event Indemnitee was, is or becomes a party to or other participant in, or is threatened to be made a party to or other participant in, a Claim by or in the right of the Company to procure a judgment in its favor by reason of (or arising in whole or in part out of) an Indemnifiable Event, the Company will indemnify Indemnitee, in accordance with and to the fullest extent permitted by the laws of the State of New York in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against costs, charges and expenses, including, without limitation, attorneys' fees and other fees and expenses, actually and reasonably incurred by Indemnitee in connection with such Claim or any appeal therefrom, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any such Claim as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that the Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim referred to in Sections 2(a) or 2(b) hereof, Indemnitee shall be indemnified against costs, charges and expenses (including attorneys' fees and other fees and expenses) actually and reasonably incurred by him in connection therewith. (d) Directors of the Company shall have no personal liability to the Company or its Members for monetary damages for breach of fiduciary or other duties as a director, except (i) for any breach of a director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) a payment of a dividend on stock of the Company or a purchase or redemption of stock of the Company in violation of law, or (iv) for any transaction from which a director derived an improper personal benefit. 2 (e) Subject to Section 4(a), any indemnification under Sections 2(a) or 2(b), unless ordered by a court, shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Indemnitee is proper in the circumstances because Indemnitee has satisfied the applicable standard set forth in Section 2(a) or 2(b), as the case may be. Subject to Section 3(a), such determination shall be made (i) by the Board of Directors of the Company (the "Board"), by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (ii) if such a quorum of disinterested directors is not available or if such disinterested directors so direct, by independent legal counsel (designated in the manner provided below in this subsection (d)) in a written opinion or (iii) by the shareholders of the Company (the "Shareholders") by a majority vote of Shareholders present at a meeting at which a quorum is present. Independent legal counsel shall be designated by vote of a majority of the disinterested directors; provided, however, that if the Board is unable or fails to so designate, such designation shall be made by the Indemnitee subject to the approval of the Company which approval shall not be unreasonably withheld. Independent legal counsel shall not be any person or firm who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of such independent legal counsel and to indemnify fully such counsel against costs, charges and expenses, including, without limitation, attorneys' fees and other fees and expenses, actually and reasonably incurred by such counsel in connection with this Agreement or the opinion of such counsel pursuant hereto. (f) All expenses, including, without limitation, attorneys' fees and other fees and expenses, incurred by Indemnitee in his capacity as a director, officer, employee and/or agent of the Company in connection with a Claim shall be paid by the Company in advance of the final disposition of such Claim in accordance with and to the full extent now or hereafter permitted by law, and in the procedural manner prescribed by Section 4(b) hereof. 3. Exceptions to Indemnification; Allowance for Compliance with Commission Requirements. (a) The Company shall not be obliged under this Agreement to make any payment in connection with any claim against Indemnitee: (i) to the extent of any fine or similar governmental imposition which the Company is prohibited by applicable law, in a final nonappealable order, from paying; or (ii) to the extent based upon or attributable to Indemnitee gaining in fact a personal profit to which he or she was not legally entitled, including, without limitation, profits made from the purchase and sale by Indemnitee of equity securities of the Company which are recoverable by the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and profits arising from transactions in publicly traded securities of the Company which were effected by Indemnitee in violation of Section 10(b) of the Exchange Act, including Rule 10b-5 promulgated thereunder. (b) Indemnitee acknowledges that the Securities and Exchange Commission (the "Commission") has expressed the opinion that indemnification of directors and officers from liabilities under the Securities Act of 1933, as amended (the "Securities Act"), is against public 3 policy as expressed in the Securities Act and is, therefore, unenforceable. Indemnitee hereby acknowledges and agrees that it will not be a breach of this Agreement for the Company to undertake with the Commission in connection with the registration for sale of any shares or other securities of the Company from time to time that, in the event a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director or officer of the Company in the successful defense of any action, suit or proceeding) is asserted in connection with such shares or other securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of competent jurisdiction the question of whether or not such indemnification by the Company is against public policy as expressed in the Securities Act and the Company will be governed by the final adjudication of such issue. Indemnitee further agrees that such submission to a court of competent jurisdiction shall not be a breach of this Agreement. 4. Certain Procedures Relating to Indemnification and Advancement of Expenses. (a) For purposes of pursuing any rights to indemnification under Sections 2(a) or 2(b) hereof, as the case may be, Indemnitee may, but shall not be required to, (i) submit to the entity making the determination whether the Indemnitee is entitled to indemnification (the "Determining Entity") a written statement of request for indemnification stating that he or she is entitled to indemnification hereunder and the basis for asserting such a claim for indemnification; and (ii) present to the Company reasonable evidence of all expenses for which payment is requested. Submission of such a written statement to the Determining Entity shall create a presumption that the Indemnitee is entitled to indemnification under Sections 2(a) or 2(b) hereof, as the case may be, and the Determining Entity shall be deemed to have determined that Indemnitee is entitled to such indemnification unless within 30 calendar days after receipt of such written statement the Determining Entity shall determine (i) in the case of a determination made by the Board, by a vote of a majority of the directors who are not parties to such suit, action or proceeding at a meeting at which a quorum is present, (ii) in the case of a determination made by independent legal counsel, in its judgment, or (iii) in the case of a determination made by the Shareholders, by a vote of a majority of the Shareholders present at a meeting of Shareholders entitled to vote thereon at a meeting at which a quorum is present, in each case based upon clear and convincing evidence (sufficient to rebut the foregoing presumption) that Indemnitee is not entitled to indemnification and Indemnitee shall have received notice within such 30 calendar day period in writing of such determination that Indemnitee is not so entitled to indemnification. The notice to the Indemnitee specified in the preceding sentence shall disclose with particularity the evidence in support of the Determining Entity's determination. The provisions of this Section 4(a) are intended to be procedural only and shall not affect the right of Indemnitee to indemnification under this Agreement and any determination by the Determining Entity that the Indemnitee is not entitled to indemnification and any failure to make the payments requested in the written statement for indemnification shall be subject to judicial review as provided in Section 7 hereof. (b) For purposes of determining whether to authorize advancement of expenses pursuant to Section 2(f) hereof, Indemnitee shall submit to the Board a sworn statement of request for advancement of expenses substantially in the form of Exhibit 1 attached hereto and made a part hereof (the "Undertaking"), averring that (i) he or she has reasonably incurred or will reasonably incur actual expenses in connection with a Claim and (ii) he or she undertakes to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company under this Agreement or otherwise. Upon receipt of an 4 Undertaking, the Board shall within 10 calendar days authorize immediate payment of the expenses stated in the Undertaking whereupon such payments shall immediately be made by the Company. No security shall be required in connection with any Undertaking and any Undertaking shall be accepted without reference to the Indemnitee's ability to make repayment. 5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company will nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including, without limitation, dismissal without prejudice, Indemnitee shall be indemnified against all costs, charges and expenses, including, without limitation, attorneys' fees and other fees and expenses, incurred in connection therewith. 6. No Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval), or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 7. Enforcement. (a) If a claim for indemnification made to the Company is not paid in full by the Company within 30 calendar days after a written claim has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. (b) In any action brought under Section 7(a) hereof, it shall be a defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the Undertaking, if any is required, has been tendered to the Company) that the Indemnitee has not met the standards of conduct which make it permissible under this Agreement for the Company to indemnify the Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company, including the Board, independent legal counsel or the Shareholders, to have made a determination prior to commencement of such action that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct set forth in the this Agreement, nor an actual determination by the Company, including the Board, independent legal counsel or the Shareholders, that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. (c) It is intent of the Company that the Indemnitee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee that the Company has failed to comply with any of its obligations under this 5 Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any action, suit or proceeding designed (or having the effect of being designed) to deny, or to recover from, the Indemnitee the benefits intended to be provided to the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of his choice, at the expense of the Company as hereinafter provided, to represent the Indemnitee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Regardless of the outcome thereof, the Company shall pay and be solely responsible for any and all costs, charges and expenses, including, without limitation, attorneys' and other fees and expenses, reasonably incurred by the Indemnitee (i) as a result of the Company's failure to perform this Agreement or any provision thereof or (ii) as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision thereof as aforesaid. 8. Non-Exclusivity and Severability. (a) The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Articles or the Cayman Islands Companies Law (the "CICL") or otherwise; provided, however, that to the extent that Indemnitee otherwise would have any greater right to indemnification under any provision of the Articles or the CICL as in effect on the date hereof, Indemnitee will be deemed to have such greater right hereunder; and, provided further, that to the extent that any change is made to the CICL (whether by legislative action or judicial decision) or the Articles which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company will not adopt any amendment to the Articles the effect of which would be to deny, diminish or encumber Indemnitee's right to indemnification under the Articles, the CICL, or otherwise as applied to any act or failure to act occurring in whole or in part prior to the date upon which the amendment was approved by the Company's Board of Directors and/or its Shareholders, as the case may be. (b) If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. 9. Liability Insurance and Funding. The Board of Directors may authorize the Company to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, or in a fiduciary or other capacity with respect to any employee benefit plan maintained by the Company, against any liability asserted against him and incurred by him in any such official capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions contained in Articles ss.116. The Company may, but will not be required to, create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement. 6 10. Subrogation. In the event of payment under this Agreement, the Company will be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities. Indemnitee will execute all papers reasonably required and will do everything that may be reasonably necessary to secure such rights and enable the Company effectively to bring suit to enforce such rights, including all of Indemnitee's reasonable costs and expenses, including attorneys' fees and disbursements, to be reimbursed by, or at the option of Indemnitee advanced by, the Company. 11. No Duplication of Payments. The Company will not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, the Articles or otherwise) of the amounts otherwise indemnifiable hereunder. 12. Defense of Claims. The Company will be entitled to participate in the defense of any Claim or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee, provided that in the event that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, or (iii) any such representation by the Company would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee will be entitled to retain separate counsel at the Company's expense. The Company will not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Claim which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes an unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Claim. 13. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including, without limitation, any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the "Company" for purposes of this Agreement), but this Agreement will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Indemnitee's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto may, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 13(a) and 13(b). Without 7 limiting the generality or effect of the foregoing, Indemnitee's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Indemnitee's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 13(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated. 14. Notices. (a) For all purposes of this Agreement, all communications, including, without limitation, notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and may be given by the Company to any Stockholder either personally or by sending it by post, cable, email, telex or telecopy to him or to his address as shown in the register of Shareholders, such notice, if mailed, to be forwarded airmail if the address be outside the Cayman Islands. (b) Where a notice or other communication is sent by post, service of the notice shall be deemed to be effected by properly addressing to the Company, to the attention of the President of the Company, at its principle executive office and to Indemnitee at Indemnitee's principal residence as shown in the Company's most current records, pre-paying and posting a letter containing the notice, and to have been effected at the expiration of sixty hours after the letter containing the same is posted as aforesaid. (c) Where a notice or other communication is sent by cable, email, telex, or telecopy, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization or medium (with receipt thereof orally confirmed) and to have been effected on the day the same is sent as aforesaid. 15. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of New York, without giving effect to the principles of conflict of laws of such State, except that the provisions of Section 8(a) hereof with respect to the scope of rights to indemnification under the CICL shall be interpreted and construed under the laws of the Cayman Islands. 16. Consent to Jurisdiction, Venue and Service of Process. Each party consents to non-exclusive jurisdiction of any New York state or federal court or any court in any other jurisdiction in which a Claim is commenced by a third person for purposes of any action, suit or proceeding hereunder, waives any objection to venue therein or any defense based on forum non conveniens or similar theories and agrees that service of process may be effected in any such action, suit or proceeding by notice given in accordance with Section 14. 17. Miscellaneous. No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral 8 or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same agreement. IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the date first above written. SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. By: ---------------------------------------- Name: Title: INDEMNITEE: ------------------------------------------- [Name of Indemnitee] 9 Exhibit 1 UNDERTAKING CAYMAN ISLANDS I, ____________________, being first duly sworn do depose and say as follows: 1. This Undertaking is submitted pursuant to the Indemnification Agreement, dated as of __________________, 20___, between Scottish Annuity & Life Holdings, Ltd. (the "Company"), a Cayman Islands corporation and the undersigned. 2. I am requesting advancement of certain costs, charges and expenses which I have incurred or will incur in defending an actual or pending civil or criminal action, suit, proceeding or claim. 3. I hereby undertake to repay this advancement of expenses if it shall ultimately be determined that I am not entitled to be indemnified by the Company under the aforesaid Indemnification Agreement or otherwise. 4. The costs, charges and expenses for which advancement is requested are, in general, all expenses related to -------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------. -------------------------------------------- Subscribed and sworn to before me, a Notary Public in and for , this day of , 20 . - -------------------- --- ------------------ -- -------------------------------------------- [Seal] My commission expires the day of , 20 . ------- ---------------- -- EX-10.19 4 ex1019.txt Exhibit 10.19 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 1, 2002, is made and entered into by and between Scottish Annuity & Life International Insurance Company (Bermuda) Ltd., a Bermuda company (the "Company") and Steven A. Helland (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as its Executive Vice President of Wealth Management; WHEREAS, in order to induce the Executive to continue to serve in such position, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company ("Holdings"). (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of Holdings; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by Holdings of Voting Stock of Holdings, or (B) any acquisition of Voting Stock of Holdings by any employee benefit Page 1 of 23 plan (or related trust) sponsored or maintained by Holdings or any Subsidiary; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the shareholders of Holdings, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of Holdings, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Holdings or all or substantially all of the assets of Holdings either directly or through one or more subsidiaries), (II) no Person (other than Holdings, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by Holdings, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; (iv) approval by the shareholders of Holdings of a complete liquidation or dissolution of Holdings, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii); or Page 2 of 23 (v) a sale or other disposition of (A) shares of Voting Stock of the Company representing at least 50% of the combined voting power of the then outstanding shares of Voting Stock of the Company, or (B) all or substantially all of the assets of the Company, unless, in either case, the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such sale or disposition beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity acquiring such Voting Stock or assets of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of Holdings. (h) "Subsidiary" means an entity in which Holdings directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; and (ii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. Page 3 of 23 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on July 1, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. 4. Positions and Duties. (a) During the Term, Executive will serve in the position of Executive Vice President of Wealth Management of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Chief Executive Officer of the Company, consistent with Executive's position as the Company's Executive Vice President of Wealth Management or (ii) assigned to his office in the Company's Articles of Incorporation. Executive will report directly to the Chief Executive Officer of the Company. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board of the Company, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, Executive will be provided appropriate office facilities at the Company's principal executive offices and any other location that the Company reasonably deems necessary to have an office in order for the Executive to perform his duties to the Company. Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of his Page 4 of 23 duties to undertake substantial travel on behalf of the Company and, if necessary, requested to relocate to another executive office of the Company. 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $250,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Company (the "Incentive Bonus"). Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (d) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (e) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. Page 5 of 23 (f) Indemnification. The Executive shall be offered an opportunity to enter into Holdings' Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Company's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company or Holdings, which acts are materially harmful to, either financially, or to the business reputation of the Company or Holdings; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Company that specifically identifies the manner in which the Company believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company and Holdings. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Page 6 of 23 Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; or (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach Page 7 of 23 of this Agreement. "Without Cause" shall mean for any reason other than Cause, death or Disability, as provided in Sections 7(a), 7(b) and 7(c). (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board of the Company then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board of the Company called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board of the Company, finding that, in the good faith opinion of the Board of the Company, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Page 8 of 23 Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Company based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twelve (12) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the sum of one (1) full year's Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Page 9 of 23 Section 8(b)(i) an amount not less than one (1) full year's Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in The Wall Street Journal "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Page 10 of 23 Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. Page 11 of 23 (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company, Holdings and each of their subsidiaries and affiliates. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Company, Holdings or any of their affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company or Holdings, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and Page 12 of 23 detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Page 13 of 23 Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefore and reasonable evidence of his payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, Page 14 of 23 may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Page 15 of 23 Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and Holdings and will form substantial business relationships with the Company's and Holdings' clients. To protect the Company's and Holdings' legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company or Holdings, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose or cause to be disclosed to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he will not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Page 16 of 23 Company or by Holdings and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company or Holdings. Confidential or Proprietary Information will include, without limitation, the Company's and Holdings' financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company or Holdings, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company or Holdings to give up employment or a business relationship with the Company or Holdings, and the Executive shall not directly or indirectly solicit or hire employees of the Company or Holdings for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's and Holdings' policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, Page 17 of 23 upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client Page 18 of 23 relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in Dallas, Texas) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws of the State of Texas and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in Dallas, Texas, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach Page 19 of 23 of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. Page 20 of 23 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Texas and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable Page 21 of 23 hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to be the Executive's beneficiary, estate or other legal representative. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Steven A. Helland --------------------------------------- Steven A. Helland SCOTTISH ANNUITY & LIFE INTERNATIONAL INSURANCE COMPANY (BERMUDA) LTD. By: /s/ Scott E. Willkomm ----------------------------------- Name: Scott E. Willkomm Title: President Page 23 of 23 EX-10.20 5 ex1020.txt Exhibit 10.20 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 1, 2002, is made and entered into by and between Scottish Annuity & Life Insurance Company (Cayman) Ltd., a Cayman Islands, British West Indies company (the "Company") and Thomas A. McAvity, Jr. (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as its Executive Vice President and Chief Investment Officer; WHEREAS, in order to induce the Executive to continue to serve in such position, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company ("Holdings"). (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of Holdings; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by Holdings of Voting Stock of Holdings, or (B) any acquisition of Voting Stock of Holdings by any employee benefit Page 1 of 23 plan (or related trust) sponsored or maintained by Holdings or any Subsidiary; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the shareholders of Holdings, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of Holdings, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Holdings or all or substantially all of the assets of Holdings either directly or through one or more subsidiaries), (II) no Person (other than Holdings, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by Holdings, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; (iv) approval by the shareholders of Holdings of a complete liquidation or dissolution of Holdings, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii); or Page 2 of 23 (v) a sale or other disposition of (A) shares of Voting Stock of the Company representing at least 50% of the combined voting power of the then outstanding shares of Voting Stock of the Company, or (B) all or substantially all of the assets of the Company, unless, in either case, the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such sale or disposition beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity acquiring such Voting Stock or assets of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of Holdings. (h) "Subsidiary" means an entity in which Holdings directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; (ii) highest annual Housing Allowance in effect during the Term; and (iii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. Page 3 of 23 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on July 1, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. 4. Positions and Duties. (a) During the Term, Executive will serve in the position of Executive Vice President and Chief Investment Officer of the Company, or such other positions as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Chief Executive Officer of the Company, consistent with Executive's positions as the Company's Executive Vice President and Chief Investment Officer or (ii) assigned to his office in the Company's Articles of Association. Executive will report directly to the Chief Executive Officer of the Company. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board of the Company, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, unless otherwise agreed by Executive, Executive will be based at the Company's principal executive offices in Bermuda; provided, however, that Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of his duties to undertake substantial travel on behalf of the Company and, if necessary, requested to relocate to another executive office of the Company. Page 4 of 23 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $262,500, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Company (the "Incentive Bonus"). Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Housing Allowance. The Company hereby agrees to pay the Executive US $5,650 per month cash allowance for use by Executive in his sole discretion. (d) Club Dues and Expenses. The Company hereby agrees to reimburse Executive for club dues and expenses up to US $5,000 per calendar year in accordance with the Company's policy regarding substantiation of expenses. (e) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (f) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. Page 5 of 23 (g) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (h) Indemnification. The Executive shall be offered an opportunity to enter into Holdings' Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Company's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company or Holdings, which acts are materially harmful to, either financially, or to the business reputation of the Company or Holdings; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Company that specifically identifies the manner in which the Company believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company and Holdings. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of Page 6 of 23 notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; or (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. Page 7 of 23 (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, death or Disability, as provided in Sections 7(a), 7(b) and 7(c). (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board of the Company then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board of the Company called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board of the Company, finding that, in the good faith opinion of the Board of the Company, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Page 8 of 23 Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Company based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twelve (12) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the Page 9 of 23 sum of one (1) full year's Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than one (1) full year's Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in The Wall Street Journal "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. Page 10 of 23 (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Page 11 of 23 Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company, Holdings and each of their subsidiaries and affiliates. (j) Relocation expenses. If the Executive becomes entitled to the benefits provided by Section 8(b), 8(c) or 8(d), the Company shall reimburse the Executive for his reasonable relocation costs from Bermuda to the United States in accordance with the Company's Relocation Policy. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Company, Holdings or any of their affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company or Holdings, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment Page 12 of 23 would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Page 13 of 23 Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; Page 14 of 23 provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be Page 15 of 23 obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and Holdings and will form substantial business relationships with the Company's and Holdings' clients. To protect the Company's and Holdings' legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company or Holdings, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose or cause to be disclosed to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate Page 16 of 23 business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he will not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company or by Holdings and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company or Holdings. Confidential or Proprietary Information will include, without limitation, the Company's and Holdings' financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company or Holdings, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company or Holdings to give up employment or a business relationship with the Company or Holdings, and the Executive shall not directly or indirectly solicit or hire employees of the Company or Holdings for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's and Holdings' policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify Page 17 of 23 any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the Page 18 of 23 benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in New York, New York) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the Page 19 of 23 substantive laws of the State of New York and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in New York, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by Page 20 of 23 electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of New York and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. Notwithstanding the foregoing, to the extent that Bermuda law restricts the ability of the Company to fully comply with the express terms of this Agreement, the Company may modify this Agreement to the extent necessary to comply with such law and such modification shall not be deemed to be a breach of this Agreement by the Company. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Page 21 of 23 Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Thomas A. McAvity, Jr. --------------------------------------- Thomas A. McAvity, Jr. SCOTTISH ANNUITY & LIFE INSURANCE COMPANY (CAYMAN) LTD. By: /s/ Scott E. Willkomm ----------------------------------- Name: Scott E. Willkomm Title: President Page 23 of 23 EX-10.21 6 ex1021.txt Exhibit 10.21 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 3, 2002, is made and entered into by and between Scottish Re (U.S.), Inc., a Delaware company (the "Company") and James Clayton Moye, III (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as its Executive Vice President; WHEREAS, in order to induce the Executive to continue to serve in such position, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company ("Holdings"). (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of Holdings; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by Holdings of Voting Stock of Holdings, or (B) any acquisition of Voting Stock of Holdings by any employee benefit plan (or related trust) sponsored or maintained by Holdings or any Subsidiary; or Page 1 of 23 (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the shareholders of Holdings, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Holdings in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of Holdings, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Holdings or all or substantially all of the assets of Holdings either directly or through one or more subsidiaries), (II) no Person (other than Holdings, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by Holdings, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; (iv) approval by the shareholders of Holdings of a complete liquidation or dissolution of Holdings, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii); or (v) a sale or other disposition of (A) shares of Voting Stock of the Company representing at least 50% of the combined voting power of the then Page 2 of 23 outstanding shares of Voting Stock of the Company, or (B) all or substantially all of the assets of the Company, unless, in either case, the individuals and entities who were the beneficial owners of Voting Stock of Holdings immediately prior to such sale or disposition beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity acquiring such Voting Stock or assets of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of Holdings. (h) "Subsidiary" means an entity in which Holdings directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; and (ii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on June 3, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that Page 3 of 23 commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. 4. Positions and Duties. (a) During the Term, Executive will serve in the position of Executive Vice President of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Chief Operating Officer of the Company, consistent with Executive's position as the Company's Executive Vice President or (ii) assigned to his office in the Company's Articles of Incorporation. Executive will report directly to the Chief Operating Officer of the Company. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board of the Company, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, unless otherwise agreed by Executive, Executive will be based at the Company's principal executive offices in Charlotte, North Carolina; provided, however, that Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of his duties to undertake substantial travel on behalf of the Company and, if necessary, requested to relocate to another executive office of the Company. 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: Page 4 of 23 (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $250,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Company (the "Incentive Bonus"). Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (d) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (e) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (f) Indemnification. The Executive shall be offered an opportunity to enter into Holdings' Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Company's actual knowledge of the Cause event, Page 5 of 23 and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company or Holdings, which acts are materially harmful to, either financially, or to the business reputation of the Company or Holdings; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Company that specifically identifies the manner in which the Company believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company and Holdings. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has Page 6 of 23 knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; or (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, death or Disability, as provided in Sections 7(a), 7(b) and 7(c). (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that Page 7 of 23 (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board of the Company then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board of the Company called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board of the Company, finding that, in the good faith opinion of the Board of the Company, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by Page 8 of 23 this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Company based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twelve (12) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the sum of one (1) full year's Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than one (1) full year's Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, Page 9 of 23 the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in The Wall Street Journal "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or Page 10 of 23 arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company, Holdings and each of their subsidiaries and affiliates. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Page 11 of 23 Company, Holdings or any of their affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company or Holdings, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Page 12 of 23 Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. Page 13 of 23 (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall Page 14 of 23 indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event Page 15 of 23 that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and will form substantial business relationships with the Company's clients. To protect the Company's legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose or cause to be disclosed to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he will not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company or by Holdings and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company or Holdings. Confidential or Proprietary Information will include, without limitation, the Company's and Holdings' financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a Page 16 of 23 contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company or Holdings, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company or Holdings to give up employment or a business relationship with the Company or Holdings, and the Executive shall not directly or indirectly solicit or hire employees of the Company or Holdings for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's and Holdings' policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Page 17 of 23 Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Page 18 of 23 Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in Charlotte, North Carolina) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws of the State of New York and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in Charlotte, North Carolina, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be Page 19 of 23 required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of North Carolina and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no Page 20 of 23 other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. Page 21 of 23 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [Remainder of Page Intentionally Left Blank] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ James Clayton Moye, III --------------------------------------- James Clayton Moye, III SCOTTISH RE (U.S.), INC. By: /s/ Oscar R. Scofield ----------------------------------- Name: Oscar R. Scofield Title: President and Chief Operating Officer Page 23 of 23 EX-10.22 7 ex1022.txt Exhibit 10.22 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 1, 2002, is made and entered into by and between Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company (the "Company") and Elizabeth Murphy (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to obtain the Executive's management and executive services by directly engaging Executive as its Executive Vice President and Chief Financial Officer; WHEREAS, in order to induce the Executive to serve in such positions, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company of Voting Stock of the Company, or (B) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or Page 1 of 23 (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (II) no Person (other than the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii). (d) "Code" means the Internal Revenue Code of 1986, as amended. Page 2 of 23 (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of the Company. (h) "Subsidiary" means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; (ii) highest annual Housing Allowance in effect during the Term; and (iii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on June 1, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. Page 3 of 23 4. Positions and Duties. (a) During the Term, Executive will serve in the positions of Executive Vice President and Chief Financial Officer of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to her by the Board, consistent with Executive's positions as the Company's Executive Vice President and Chief Financial Officer or (ii) assigned to her office in the Company's Articles of Association. Executive will report directly to the President. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of her business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with her employment during the Term, unless otherwise agreed by Executive, Executive will be based at the Company's principal executive offices in Bermuda; provided, however, that Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of her duties to undertake normal travel on behalf of the Company. 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of her obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $275,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". Page 4 of 23 (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Board with a target bonus of 50% of Base Salary (the "Incentive Bonus"). Notwithstanding the foregoing, the minimum Incentive Bonus for the year ended December 31, 2002 shall be 25% of Executive's Base Salary for that year. Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Housing Allowance. The Company hereby agrees to pay the Executive US $12,500 per month cash allowance for use by Executive in her sole discretion. (d) Club Dues and Expenses. The Company hereby agrees to reimburse Executive for club dues and expenses up to US $5,000 per calendar year in accordance with the Company's policy regarding substantiation of expenses. (e) Executive Benefits. During the Term, the Company will make available to Executive and her eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (f) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform her duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (g) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (h) Indemnification. The Executive shall be offered an opportunity to enter into the Company's Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. (i) Signing Bonus. The Company shall pay Executive a US $125,000 signing bonus upon execution of this Agreement. Page 5 of 23 (j) Initial Stock Option Grant. The Company shall grant Executive on the Commencement Date an option ("Option") to purchase up to 100,000 Ordinary Shares of the Company ("Option Agreement"), such Option to be exercisable at a per share price equal to the Market Value Per Share (as defined in the Company's 2001 Stock Option Plan) on the date of grant and to be governed by the option agreement, a form of which is attached hereto as Exhibit B. (k) Retirement Account. During the Term, the Company shall fund a retirement account for Executive in an amount not less than 10% of the sum of the Executive's Base Salary and Housing Allowance for each year during the Term. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Board's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company which acts are materially harmful to, either financially, or to the business reputation of the Company; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform her duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Board that specifically identifies the manner in which the Board believes that Executive has failed or refused to perform her duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. (b) Death. In the event Executive dies during the Term, her employment shall automatically terminate effective on the date of her death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented her from performing her material duties hereunder for Page 6 of 23 a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of her duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate her employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with her title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan; or (VII) for any reason, or without reason, the first occurrence of a Change in Control. (e) Without Good Reason. Executive may voluntarily terminate her employment with the Company without Good Reason by giving written notice to the Company Page 7 of 23 as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, Death or Disability, as provided in Sections 7(a), 7(b) and 7(c) and shall also include termination of employment because the Company has failed to renew Executive's work permit. (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with her counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may Page 8 of 23 be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive her accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination or by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit C, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Board based upon the Page 9 of 23 relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twenty four (24) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the sum of two (2) full years' Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than two (2) full years' Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in the Page 10 of 23 The Wall Street Journal "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the Page 11 of 23 amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company and each of its subsidiaries and affiliates. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. Page 12 of 23 (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in her sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on her federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct Page 13 of 23 copies (with any amendments) of her federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of her payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in her possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such Page 14 of 23 contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Page 15 of 23 Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of her employment with the Company the Executive will learn business information valuable to the Company and will form substantial business relationships with the Company's clients. To protect the Company's legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out her obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that she will not without the prior written consent of the Company, during Page 16 of 23 the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in her possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or Proprietary Information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company to give up employment or a business relationship with the Company, and the Executive shall not directly or indirectly solicit or hire employees of the Company for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that she shall abide by, through the Date of Termination, the Company's policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Page 17 of 23 Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any Page 18 of 23 such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in Bermuda) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws Bermuda and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Page 19 of 23 Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in Bermuda, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally Page 20 of 23 recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at her principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of Bermuda, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. Notwithstanding the foregoing, to the extent that Bermuda law restricts the ability of the Company to fully comply with the express terms of this Agreement, the Company may modify this Agreement to the extent necessary to comply with such law and such modification shall not be deemed to be a breach of this Agreement by the Company. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. Page 21 of 23 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [Remainder of Page Intentionally Left Blank] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Elizabeth Murphy --------------------------------------- Elizabeth Murphy SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. By: /s/ Scott E. Willkomm ----------------------------------- Name: Scott E. Willkomm Title: President Page 23 of 23 EX-10.23 8 ex1023.txt Exhibit 10.23 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 1, 2002, is made and entered into by and between Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company (the "Company") and Clifford J. Wagner (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as its Executive Vice President and Chief Actuary; WHEREAS, in order to induce the Executive to continue to serve in such positions, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company of Voting Stock of the Company, or (B) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or Page 1 of 23 (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (II) no Person (other than the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii). (d) "Code" means the Internal Revenue Code of 1986, as amended. Page 2 of 23 (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of the Company. (h) "Subsidiary" means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; (ii) highest annual Housing Allowance in effect during the Term; and (iii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on June 1, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. Page 3 of 23 4. Positions and Duties. (a) During the Term, Executive will serve in the positions of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Chief Executive Officer of the Company, consistent with Executive's positions as the Company's Executive Vice President and Chief Actuary or (ii) assigned to his office in the Company's Articles of Association. Executive will report directly to the Chief Executive Officer of the Company. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, unless otherwise agreed by Executive, Executive will be based at the Company's principal executive offices in Bermuda; provided, however, that Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of his duties to undertake substantial travel on behalf of the Company and, if necessary, requested to relocate to another executive office of the Company. 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $250,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". Page 4 of 23 (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Board (the "Incentive Bonus"). Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Housing Allowance. The Company hereby agrees to pay the Executive US $10,000 per month cash allowance for use by Executive in his sole discretion. (d) Club Dues and Expenses. The Company hereby agrees to reimburse Executive for club dues and expenses up to US $5,000 per calendar year in accordance with the Company's policy regarding substantiation of expenses. (e) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (f) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (g) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (h) Indemnification. The Executive shall be offered an opportunity to enter into the Company's Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. (i) Relocation expenses. Subject to Section 8(k), the Company shall reimburse the Executive for his reasonable relocation costs to Bermuda in accordance with the Company's Relocation Policy. Page 5 of 23 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Board's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company which acts are materially harmful to, either financially, or to the business reputation of the Company; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Board that specifically identifies the manner in which the Board believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. Page 6 of 23 (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; or (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, death or Disability, as provided in Sections 7(a), 7(b) and 7(c) and shall also include termination of employment because the Company has failed to renew Executive's work permit. Page 7 of 23 (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. Page 8 of 23 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Board based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twelve (12) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the sum of one (1) full year's Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than one (1) full year's Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts Page 9 of 23 payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite "prime rate" as set forth from time to time during the relevant period in The Wall Street Journal, "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately Page 10 of 23 prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall Page 11 of 23 immediately resign all positions and directorships with the Company and each of its subsidiaries and affiliates. (j) Relocation expenses. If the Executive becomes entitled to the benefits provided by Section 8(b), 8(c) or 8(d), the Company shall reimburse the Executive for his reasonable relocation costs from Bermuda to the United States in accordance with the Company's Relocation Policy. (k) Reimbursement of Relocation Expenses. If the Executive terminates this Agreement without Good Reason, the Executive shall reimburse to the Company a pro rata share of the relocation expenses according to the following schedule: (i) Prior to the expiration of six (6) months from the Commencement Date, the Executive shall reimburse 75% of relocation expenses to the Company; (ii) Prior to the expiration of twelve (12) months from the Commencement Date, the Executive shall reimburse 50% of the relocation expenses to the Company; and (iii) Prior to the expiration of eighteen (18) months from the Commencement Date, the Executive shall reimburse 25% of the relocation expenses to the Company. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in Page 12 of 23 clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Page 13 of 23 Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without Page 14 of 23 limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Page 15 of 23 Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and will form substantial business relationships with the Company's clients. To protect the Company's legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term Page 16 of 23 and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he will not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or Proprietary Information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company to give up employment or a business relationship with the Company, and the Executive shall not directly or indirectly solicit or hire employees of the Company for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, Page 17 of 23 identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, Page 18 of 23 engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in Charlotte, North Carolina) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the Page 19 of 23 arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws of the State of North Carolina and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in North Carolina, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Page 20 of 23 Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of North Carolina and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. Notwithstanding the foregoing, to the extent that Bermuda law restricts the ability of the Company to fully comply with the express terms of this Agreement, the Company may modify this Agreement to the extent necessary to comply with such law and such modification shall not be deemed to be a breach of this Agreement by the Company. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Page 21 of 23 Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [Remainder of Page Intentionally Left Blank] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Clifford J. Wagner --------------------------------------- Clifford J. Wagner SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. By: /s/ Scott E. Willkomm ----------------------------------- Name: Scott E. Willkomm Title: President Page 23 of 23 EX-10.24 9 ex1024.txt Exhibit 10.24 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 8, 2002, is made and entered into by and between Scottish Annuity & Life Holdings, Ltd., a Cayman Islands, British West Indies company (the "Company") and Scott E. Willkomm (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as its President; WHEREAS, in order to induce the Executive to continue to serve in such position, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company of Voting Stock of the Company, or (B) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or Page 1 of 23 (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (II) no Person (other than the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clause (A) or (B) of Section 1(c)(iii). (d) "Code" means the Internal Revenue Code of 1986, as amended. Page 2 of 23 (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of the Company. (h) "Subsidiary" means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; (ii) highest annual Housing Allowance in effect during the Term; and (iii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior three (3) fiscal years. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on July 1, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the third anniversary of the Commencement Date; provided, however, that commencing on the third anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the second anniversary of the first occurrence of a Change in Control. Page 3 of 23 4. Positions and Duties. (a) During the Term, Executive will serve in the position of President of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Board, consistent with Executive's positions as the Company's President or (ii) assigned to his office in the Company's Articles of Association. Executive will report directly to the Board. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, Executive will be provided appropriate office facilities at the Company's principal executive offices and any other location that the Company reasonably deems necessary to have an office in order for the Executive to perform his duties to the Company. Executive agrees and acknowledges that in view of the nature of Company's business operations, Executive may be required in the performance of his duties to undertake substantial travel on behalf of the Company. 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of US $510,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". (b) Incentive Bonus. For each calendar year that begins during the Term, the Company shall pay a cash bonus to Executive based upon pre-established Page 4 of 23 performance goals established by the Board (the "Incentive Bonus"). Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Housing Allowance. The Company hereby agrees to pay the Executive a monthly housing allowance consistent with the Company's policy regarding housing allowances. Such housing allowance is for use by Executive in his sole discretion. (d) Club Dues and Expenses. The Company hereby agrees to reimburse Executive for club dues and expenses up to US $5,000 per calendar year in accordance with the Company's policy regarding substantiation of expenses. (e) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company. (f) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (g) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (h) Indemnification. The Executive shall be offered an opportunity to enter into the Company's Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Board's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes Page 5 of 23 of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his or her duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company which acts are materially harmful to, either financially, or to the business reputation of the Company; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's willful and continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Board that specifically identifies the manner in which the Board believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not Page 6 of 23 curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; (VI) a material reduction of Executive's benefits provided pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan; or (VII) for any reason, or without reason. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, Death or Disability, as provided in Sections 7(a), 7(b) and 7(c). (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied Page 7 of 23 upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). Page 8 of 23 (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of the Total Cash Compensation that Executive would have received during the remaining Term of the Agreement, such amount to be calculated from the date the Executive's employment was terminated to the date that is the third anniversary of the Commencement Date (the "Severance Calculation Period"), (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good faith opinion of the Board based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), (x) where the Severance Calculation Period is for twenty four (24) calendar months or less, the Company shall pay the Executive under Section 8(b)(i) an amount equal to the sum of two (2) full years' Total Cash Compensation, (y) upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than two (2) full years' Total Cash Compensation, and (z) any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable, except that an amount equal to 300% of the Executive's Total Cash Page 9 of 23 Compensation shall be substituted in lieu of the amount set forth in Section 8(b)(i), and the Severance Calculation Period shall be inapplicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred eighty (180) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in The Wall Street Journal "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the Page 10 of 23 foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company and each of its subsidiaries and affiliates. (j) Relocation expenses. If the Executive becomes entitled to the benefits provided by Section 8(b), 8(c) or 8(d), the Company shall reimburse the Executive for his reasonable relocation costs in accordance with the Company's Relocation Policy. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Page 11 of 23 Gross-Up payments provided for in this Section 9) or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such Page 12 of 23 determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefore and reasonable evidence of his payment thereof. Page 13 of 23 (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall Page 14 of 23 indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event Page 15 of 23 that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and will form substantial business relationships with the Company's clients. To protect the Company's legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or Proprietary Information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The Page 16 of 23 foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company to give up employment or a business relationship with the Company, and the Executive shall not directly or indirectly solicit or hire employees of the Company for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment Page 17 of 23 under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $100,000.00. Page 18 of 23 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in New York City) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws of the State of New York and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in New York City, or in the sole discretion of the Company, in a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or Page 19 of 23 indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Executive Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of New York and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. Notwithstanding the foregoing, to the extent that Bermuda law restricts the ability of the Company to fully comply with the express terms of this Agreement, the Company may modify this Agreement to the extent Page 20 of 23 necessary to comply with such law and such modification shall not be deemed to be a breach of this Agreement by the Company. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. Page 21 of 23 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [Remainder of Page Intentionally Left Blank] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Scott E. Willkomm --------------------------------------- Scott E. Willkomm SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. By: /s/ Michael C. French ----------------------------------- Name: Michael C. French Title: Chief Executive Officer Page 23 of 23 EX-10.25 10 ex1025.txt Exhibit 10.25 Execution Copy Employment Agreement This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of May 29, 2002, is made and entered into by and between Scottish Re (U.S.), Inc., a Delaware corporation (the "Company") and Larry N. Stern (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to ensure that it retains the Executive's management and executive services by directly engaging Executive as the President of Scottish Solutions, LLC; WHEREAS, in order to induce the Executive to continue to serve in such position, the Company desires to provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement; and WHEREAS, the Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the agreements and covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Change in Control" means the occurrence during the Term of any of the following events: (i) the acquisition by any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (a "Person"), including as a result of a Business Combination (as defined in Section 1(c)(iii)), of beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Act, of 25% or more of the combined voting power of the then outstanding Voting Stock of Scottish Annuity & Life Holdings, Ltd (the "Parent Company"); provided, however, that for purposes of this Section 1(c)(i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Parent Company of Voting Stock of the Parent Company, or (B) any acquisition of Voting Stock of the Parent Company by any employee benefit plan (or related trust) sponsored or maintained by the Parent Company or any Subsidiary; or Page 1 of 23 (ii) individuals who, as of the date hereof, constitute the Board of Directors of the Parent Company (the "Incumbent Board," (as modified by this Section 1(c)(ii))) cease for any reason to constitute at least a majority of the Parent Company's Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Parent Company's shareholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Parent Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Parent Company's Board; or (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Parent Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, either (A)(I) the individuals and entities who were the beneficial owners of Voting Stock of the Parent Company immediately prior to such Business Combination beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent Company or all or substantially all of the Parent Company's assets either directly or through one or more subsidiaries), (II) no Person (other than the Parent Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Parent Company, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Parent Company Board providing for such Business Combination, or (B) the same as Section 1(c)(iii)(A), except in clause (I), substituting "one-third" for "50%," and in clause (III), substituting "two-thirds" for "a majority"; (iv) approval by the shareholders of the Parent Company of a complete liquidation or dissolution of the Parent Company, except pursuant to a Page 2 of 23 Business Combination that complies with clause (A) or (B) of Section 1(c)(iii); or (v) a sale or other disposition of (A) shares of the Voting Stock of the Company representing at least 50% of the combined voting power of the then outstanding shares of Voting Stock of the Company, or (B) all or substantially all of the assets of the Company, unless, in either case, the individuals and entities who were the beneficial owners of Voting Stock of the Parent Company immediately prior to such sale or disposition beneficially own in the aggregate, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity acquiring such Voting Stock or assets of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Competitive Activity" means the Executive's participation, without the written consent of the Board, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise engages in substantial and direct competition with the Company if such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 10% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 10% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto or (ii) participation in the management of any such enterprise other than in connection with the competitive operations of such enterprise. (f) "Director" means a member of the Board. (g) "Ordinary Shares" means the ordinary shares, par value $0.01 per share, of the Parent Company. (h) "Subsidiary" means an entity in which the Parent Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock. (i) "Total Cash Compensation" means the sum of the (i) highest annual Base Salary in effect during the Term; and (ii) highest annual Incentive Bonus (as set forth in Section 6(b)) earned during the prior fiscal year. (j) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed with the Company for the Term, upon the terms and conditions herein set forth. Page 3 of 23 3. Term. The term of employment under this Agreement (the "Initial Term") shall commence on May 29, 2002 ("Commencement Date") and subject to earlier termination pursuant to Section 7, expire on the first anniversary of the Commencement Date; provided, however, that commencing on the first anniversary of the Commencement Date, this Agreement will automatically be renewed for successive one-year periods (the "Additional Term"), subject to earlier termination pursuant to Section 7, unless either party provides written notice of non-renewal to the other pursuant to Section 15 at least ninety (90) days prior to the end of the Initial Term or any Additional Term. The Initial Term and any Additional Term shall be referred to under this Agreement as the "Term"; provided, however, that if a Change in Control occurs during the Term (as determined without regard to this clause), then the Term shall include the period ending on the first anniversary of the first occurrence of a Change in Control. 4. Positions and Duties. (a) During the Term, Executive will serve in the position of President of Scottish Solutions, LLC, a wholly owned subsidiary of the Company, or such other position as may be agreed upon by the Company and the Executive, and will have such duties, functions, responsibilities and authority as are (i) reasonably assigned to him by the Board, consistent with Executive's position as President of Scottish Solutions, LLC or (ii) assigned to his office in the Scottish Solutions, LLC's Articles of Incorporation. Executive will report directly to the Chief Operating Officer of the Company. (b) During the Term, Executive will be the Company's full-time employee and, except as may otherwise be approved in advance in writing by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive will devote substantially all of his business time and attention to the performance of his duties to Scottish Solutions, LLC. Notwithstanding the foregoing, Executive may (i) subject to the approval of the Board, serve as a director of a company, provided such service does not constitute a Competitive Activity, (ii) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, (iii) serve as an officer, director or trustee of, or otherwise participate in, any organizations and activities with respect to which Executive's participation was disclosed to the Company in writing prior to the date hereof and (iv) manage personal and family investments. 5. Place of Performance. In connection with his employment during the Term, unless otherwise agreed by Executive, Executive will be based at the Company's principal executive offices in Charlotte, North Carolina; provided, however, that Executive agrees and acknowledges that in view of the nature of the Company's business operations, Executive may be required in the performance of his duties to undertake substantial travel on behalf of the Company and, if necessary, requested to relocate to another executive office of the Company. Page 4 of 23 6. Compensation and Related Matters. As compensation and consideration for the performance by Executive of his obligations pursuant to this Agreement, Executive shall be entitled to the following: (a) Base Salary. During the Term, the Company shall pay Executive an annual base salary ("Base Salary") of $250,000, payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. The Company agrees to review such compensation not less frequently than annually during the Term. Once increased, the Base Salary may not be decreased. The Base Salary as increased from time to time shall be referred to herein as "Base Salary". (b) Incentive Bonus. For the calendar year 2002 and each calendar year that begins thereafter during the Term, the Company shall pay a cash bonus to Executive based upon pre-established performance goals established by the Board. The target bonus is 50% of annual Base Salary (the "Incentive Bonus"). To receive the Incentive Bonus target of 50%, the Executive must produce, as a performance measure, total gross revenue for Scottish Solutions, LLC designated by the Board (the "Total Gross Revenue Target"). In calendar year 2002 the Executive the Total Gross Revenue Target is $2.5 million. Total Gross Revenue shall be the sum of (i) total revenue generated from broker fees paid by companies not part of the then current Parent Company structure and (ii) total transaction revenue generated from new business placed with companies which are a part of the then current Parent Company structure. In the event Executive does not produce his Total Gross Revenue Target in any calendar year, the Board, at its sole discretion, shall determine the Incentive Bonus, if any. In the event Executive exceeds his Total Gross Revenue Target, the Executive will receive an additional bonus (a bonus in excess of the 50% target bonus) equal to 10% of the amount in excess of the Total Gross Revenue Target. In no event, however, will Executive's total Incentive Bonus for a calendar year exceed an amount equal to the Executive's Base Salary. Any Incentive Bonus shall be payable at the times and in the manner consistent with the Company's policies regarding compensation of executive employees. (c) Executive Benefits. During the Term, the Company will make available to Executive and his eligible dependents, participation in all Company and Parent Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company or Parent Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, disability, salary continuation, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance, expense reimbursement or other employee benefit policies, plans, programs or arrangements, including without limitation financial counseling services or any equivalent successor policies, plans, programs or arrangements Page 5 of 23 that may now exist or be adopted hereafter by the Company or the Parent Company. (d) Expenses. The Company will promptly reimburse Executive for all reasonable business expenses Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with Executive's position and level of responsibility with the Company, and in accordance with the Company's policy regarding substantiation of expenses. (e) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per annum, in accordance with the Company's vacation policy. (f) Indemnification. The Executive shall be offered an opportunity to enter into the Parent Company's Indemnification Agreement substantially in the form attached hereto as Exhibit A effective as of the Commencement Date. 7. Termination. (a) Termination by the Company with Cause. The Company shall have the right to terminate Executive's employment at any time with Cause by providing a Notice of Termination to Executive in accordance with Section 7(g) not more than sixty (60) days after the Board's actual knowledge of the Cause event, and such termination shall not be deemed to be a breach of this Agreement. For purposes of this Agreement, "Cause" shall mean: (i) habitual drug or alcohol use which impairs Executive's ability to perform his duties hereunder; (ii) Executive's conviction during the Term by a court of competent jurisdiction, or a pleading of "no contest" or guilty to an arrestable criminal offense resulting in the imposition of a custodial sentence; (iii) Executive's engaging in fraud, embezzlement or any other illegal conduct with respect to the Company which acts are materially harmful to, either financially, or to the business reputation of the Company; (iv) Executive's willful breach of Section 10 hereof; (v) Executive's continued failure or refusal to perform his duties hereunder (other than such failure caused by Executive's Disability), after a written demand for performance is delivered to Executive by the Board that specifically identifies the manner in which the Board believes that Executive has failed or refused to perform his duties; or (vi) Executive otherwise breaches any material provision of this Agreement which is not cured, if curable, within thirty (30) days after written notice thereof. No act or failure to act on the part of Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (b) Death. In the event Executive dies during the Term, his employment shall automatically terminate effective on the date of his death, such termination shall not be deemed to be a breach of this Agreement, and the Company shall pay or provide to the Executive's beneficiaries or estate, as appropriate, as soon as Page 6 of 23 practicable after the Executive's death, the amounts and benefits provided for in Section 8(d). (c) Disability. In the event Executive shall suffer from a mental or physical disability which shall have prevented him from performing his material duties hereunder for a period of at least one-hundred eighty (180) non-consecutive days within any 365 day period, the Company shall have the right to terminate Executive's employment for "Disability," such termination to be effective upon the giving of notice thereof to the Executive in accordance with Section 7(g) hereof, such termination shall not be deemed to be a breach of this Agreement, and the Company shall provide to the Executive the amounts and benefits provided for in Section 8(d). Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by Executive (the "Disability Effective Date"); provided that Executive shall not have returned to full-time performance of his duties hereunder within thirty (30) days following receipt of such notice. (d) Good Reason. (i) Executive may terminate his employment with the Company for "Good Reason" and such termination shall not be deemed to be a breach of this Agreement. Executive shall have Good Reason if Executive has knowledge that one of the events described in Section 7(d)(ii) has occurred without Executive's written consent and (A) if the event is not curable, Executive gives a Notice of Termination to the Company pursuant to Section 7(g) within sixty (60) days after having knowledge of the event, or (B) if the event is curable, (I) Executive gives written notice to the Company thereof in accordance with Section 15 within sixty (60) days after having knowledge of the event, (II) such event has not been cured within thirty (30) days after the Executive gives notice of the event to the Company, and (III) Executive gives a Notice of Termination to the Company in accordance with Section 7(g) within thirty (30) days after the expiration of the Company's 30-day cure period. (ii) For purposes of this Agreement, "Good Reason" shall mean (A) prior to a Change in Control, (I) a failure by the Company to comply with any material provision of this Agreement; (II) the liquidation, dissolution, merger, consolidation or reorganization of the Company or all of its business and/or assets, unless the successor(s) assume all duties and obligations of the Company pursuant to Section 14(a); or (III) upon the provision of notice by the Company under Section 3 of non-renewal of the Agreement, and (B) on or after a Change in Control, (I) any of the events set forth in Section 7(d)(ii)(A); (II) any material and adverse change to Executive's duties or authority which are inconsistent with his title and position set forth herein; (III) a diminution of Executive's title or position; (IV) the relocation of Executive's office; (V) a reduction in Executive's Base Salary; or (VI) a material reduction of Executive's benefits provided Page 7 of 23 pursuant to Section 6 other than a reduction permitted under terms and conditions of the applicable Company policy or benefit plan. (e) Without Good Reason. Executive may voluntarily terminate his employment with the Company without Good Reason by giving written notice to the Company as provided in Section 7(g). Such notice must be provided to the Company at least thirty (30) days prior to such termination. Such termination shall not be deemed to be a breach of this Agreement. (f) Without Cause. This Company shall have the right to terminate Executive's employment hereunder without Cause by providing written notice to Executive as provided in Section 7(g), and such termination shall not be deemed to be a breach of this Agreement. "Without Cause" shall mean for any reason other than Cause, Death or Disability, as provided in Sections 7(a), 7(b) and 7(c). (g) Notice of Termination. (i) Any termination of Executive's employment by the Company pursuant to Section 7(a), 7(c) or 7(f), or by Executive pursuant to Section 7(d) or 7(e), shall be communicated by a Notice of Termination to the other party hereto in accordance with this Section 7(g) and Section 15. For purposes of this Agreement, a "Notice of Termination" means a written notice that (A) indicates the specific termination provision in this Agreement relied upon, (B) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (C) if the Date of Termination (as defined in Section 7(h)) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or Company's rights hereunder. (ii) Any Notice of Termination by the Company for Cause shall be ratified by a resolution duly adopted by the affirmative vote of not less than two-thirds of the Board then in office (excluding, for this purpose, the Executive, if the Executive is then a member of the Board) at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as defined in Section 7(a) and specifying the particulars thereof in detail. Page 8 of 23 (h) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days thereafter), as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with Section 7(a) or 7(d) of this Agreement, as the case may be), (ii) if Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date set forth in the Notice of Termination (iii) if Executive's employment is terminated by Executive without Good Reason, the Date of Termination shall be the date set forth in the Notice of Termination, but no sooner than thirty (30) days after such Notice of Termination is received by the Company and (iv) if Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of the Executive's death or the Disability Effective Date, as the case may be. 8. Compensation upon Termination. If the Company or Executive terminates the Executive's employment during the Term, the Company shall pay to the Executive the amount(s) set forth below in a lump sum in cash upon the later of (i) five (5) business days after the Date of Termination or date of expiration of this Agreement, as the case may be, (ii) the effective date of a release (if a release is required by this Section 8) or (iii) at the Executive's option, a date later than the dates specified in clauses (i) and (ii). (a) Compensation upon Termination for Cause or Without Good Reason. In the event of termination of Executive's employment by the Company for Cause or by the Executive without Good Reason, or by reason of expiration of the Term (if applicable), the Company shall pay the Executive his accrued, but unpaid Base Salary, accrued vacation pay and unpaid business expenses through the Date of Termination (the "Compensation Payments"), and the Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law. The Executive shall not be entitled to the payment of any bonus or other incentive compensation for any portion of the fiscal year in which such termination occurs. (b) Compensation upon Termination or by the Company Without Cause or upon Termination by the Executive for Good Reason. Subject to Section 8(c), in the event of the termination of the Executive's employment by the Company without Cause or upon termination of the Executive's employment by the Executive for Good Reason, the Company shall pay the Executive the Compensation Payments. In addition, conditioned upon receipt of the Executive's release of claims substantially in the form attached hereto as Exhibit B, subject to such changes as may be required to preserve the intent thereof for changes in applicable law, the Company shall pay or provide to the Executive (i) as severance pay, an amount equal to the sum of one (1) full year's Total Cash Compensation (ii) earned, but unpaid Incentive Bonus for the year of termination, as determined in the good Page 9 of 23 faith opinion of the Board based upon the relative achievement of performance targets through the Date of Termination (the "Termination Bonus"), and (iii) the welfare benefits set forth in Section 8(f). Notwithstanding the foregoing provisions of this Section 8(b), upon termination by the Executive for Good Reason due to Section 7(d)(ii)(A)(III) (Company's notice of non-renewal of the Agreement), the Company shall pay the Executive under Section 8(b)(i) an amount not less than one (1) full year's Total Cash Compensation, and any right of the Executive to receive termination payments and benefits under Section 8(b) shall be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 10. (c) Compensation upon Termination in Connection with a Change in Control of the Company. If, within the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the first anniversary of such occurrence of a Change in Control or, if earlier, until the Executive's death, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, then the provisions of Section 8(b) shall be applicable. For purposes of the preceding sentence, if a Change in Control occurs and not more than one-hundred twenty (120) days prior to the date on which the Change in Control occurs, the Executive's employment is terminated by the Company without Cause, such termination of employment shall be deemed a termination of employment after a Change in Control if the Executive has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. (d) Compensation upon Death or Disability. In the event of the Executive's death or the termination of employment due to Disability, the Company shall pay to the Executive (or beneficiaries, or estate, as the case may be) an amount equal to the sum of (i) the Compensation Payments and (ii) the Termination Bonus. Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provision of any agreements, plans or programs of the Company. (e) Set-Off, Counterclaim or Late Payment. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount or value thereof at an annualized rate of interest equal to the "prime rate" as set forth from time to time during the relevant period in the The Wall Street Journal, "Money Rates" column, plus four (4)%. Such interest shall be payable as it accrues on demand. Any change in such prime rate shall be effective on and as of the date of such change. Page 10 of 23 (f) Welfare Benefits. If the Executive becomes entitled to the benefits provided by Section 8(b) or 8(c), then in addition to such benefits, for a period following the Date of Termination equal to the greater of the remaining Term or twelve (12) months (the "Continuation Period"), the Company shall arrange to provide the Executive with health insurance, life insurance, and other medical benefits substantially similar to those that the Executive was receiving or entitled to receive immediately prior to the Date of Termination (or, if greater, immediately prior to the reduction, termination, or denial described in Section 7(d)(ii)(B)(VI), if applicable). If and to the extent that any benefit described in this Section 8(f) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company will itself pay or provide for the payment to the Executive, his dependents and beneficiaries, of such benefits along with, in the case of any benefit described in this Section 8(f) that is subject to tax because it is not or cannot be paid or provided under any such policy, plan, program or arrangement of the Company, an additional amount such that after payment by the Executive, or his dependents or beneficiaries, as the case may be, of all taxes so imposed, the recipient retains an amount equal to such taxes. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" will be the termination of the Continuation Period and the Executive will be considered to have remained actively employed on a full-time basis through that date. (g) Scope and Nonduplication. The provision or payment of termination benefits under this Section 8 shall not affect any rights the Executive may have pursuant to any agreement, plan, policy, program or arrangement of the Company providing employee benefits, which rights shall be governed by the terms thereof or by the release described in Section 8; provided, however, that to the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 8 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under this Agreement. (h) Mitigation. In the event of the termination of the Executive by the Company without Cause, or by the Executive with Good Reason, the Executive shall not be required to mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments or benefits under this Agreement. No amounts earned by the Executive after the Executive's termination by the Company without Cause or by the Executive with Good Reason, whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment or benefit under any provision of this Agreement. Notwithstanding the foregoing, the Executive's coverage under the Company's group medical insurance as provided in Section 8(f) shall be reduced to the extent comparable welfare benefits are actually received by the Executive as soon as the Page 11 of 23 Executive becomes covered under any group medical plan made available by another employer. The Executive shall report to the Company any such coverage actually received by the Executive. (i) Resignations. Except to the extent requested by the Company, upon any termination of the Executive's employment with the Company, the Executive shall immediately resign all positions and directorships with the Company and each of its subsidiaries and affiliates. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 9) or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided; however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. For purposes of determining the amount of the Gross-Up Payment, the Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 9(f), all determinations required to be made under this Section 9, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required Page 12 of 23 to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any material benefit or amount (or portion thereof), it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 9(f) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, record and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and-otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 9(b). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall report and make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents Page 13 of 23 reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days pay to the Company the amount of such reduction. (e) The fees and expenses of Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 9(b) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than thirty (30) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notified the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income or other tax, including interest and penalties with respect thereto, imposed as a result of such representation and Page 14 of 23 payment of costs and expenses. Without limiting the foregoing provisions of this Section 9(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 9(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 9. (h) Notwithstanding any provision of this Agreement to the contrary, but giving effect to any redetermination of the amount of Gross-Up payments otherwise required by this Section 9, if (i) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive and (ii) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed three times the Executive's "base amount" by more than $50,000, then the payments and benefits to be paid or provided under this Agreement will be reduced (or repaid to the Page 15 of 23 Company, if previously paid or provided) to the minimum extent necessary so that no portion of any payment or benefit to the Executive, as so reduced or repaid, constitutes an "excess parachute payment." For purposes of this Section 9(h), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in or repayment of such payments or benefits to be provided under this Agreement is required pursuant to this Section 9(h) will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. Appropriate adjustments shall be made to amounts previously paid to Executive, or to amounts not paid pursuant to this Section 9(h), as the case may be, to reflect properly a subsequent determination that the Executive owes more or less Excise Tax than the amount previously determined to be due. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced or repaid pursuant to this Section 9(h), the Executive shall be entitled to designate the payments and/or benefits to be so reduced or repaid in order to give effect to this Section 9(h). The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days prior to the Date of Termination or other due date, the Company may effect such reduction or repayment in any manner it deems appropriate. 10. Competitive Activity; Confidentiality; Non-solicitation. (a) Executive acknowledges that during the course of his employment with the Company the Executive will learn business information valuable to the Company and will form substantial business relationships with the Company's clients. To protect the Company's legitimate business interests in preserving its valuable confidential business information and client relationships, the Executive shall not without the prior written consent of the Company, which consent shall not be unreasonably withheld, (i) engage in any Competitive Activity during the Term and (ii) if the Executive shall have received or shall be receiving benefits under Section 8(b) or 8(c), engage in any Competitive Activity for a period ending on the first anniversary of the earlier of the Date of Termination or the date of expiration of this Agreement. (b) During the Term, and in consideration for the Executive's agreement to enter into this Agreement, the Company agrees that it will disclose to Executive its Confidential or Proprietary Information (as defined in this Section 10(b)) to the extent necessary for Executive to carry out his obligations to the Company. The Executive hereby acknowledges the Company has a legitimate business interest in protecting its Confidential or Proprietary Information and hereby covenants and agrees that he will not without the prior written consent of the Company, during the Term or thereafter (i) disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Confidential or Proprietary Information of the Company or (ii) remove, copy or Page 16 of 23 retain in his possession any Company files or records. For purposes of this Agreement, the term "Confidential or Proprietary Information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by Executive's breach of this Section 10(b)) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or Proprietary Information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, and all other secrets and all other information of a confidential or proprietary nature. Confidential or Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. The foregoing obligations imposed by this Section 10(b) shall not apply (x) during the Term, in the course of the business of and for the benefit of the Company, (y) if such Confidential or Proprietary Information will have become, through no fault of the Executive, generally known to the public or (z) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). (c) The Executive hereby covenants and agrees that during the Term and for one (1) year after the Date of Termination Executive will not, without the prior written consent of the Company, which consent shall not unreasonably be withheld, on behalf of Executive or on behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company to give up employment or a business relationship with the Company, and the Executive shall not directly or indirectly solicit or hire employees of the Company for employment with any other employer. (d) The Executive agrees that on or before the Date of Termination the Executive shall return all Company property, including without limitation all credit, identification and similar cards, keys and documents, books, records and office equipment. The Executive agrees that he shall abide by, through the Date of Termination, the Company's policies and procedures for worldwide business conduct. (e) Executive and the Company agree that the covenants contained in this Section 10 are reasonable under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such court will have the right, power and authority to excise or modify any provision or provisions of such covenants as to the court will appear not reasonable and to enforce the remainder of the covenants as so amended. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his obligations under this Section 10 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive Page 17 of 23 acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. (f) Representations of the Executive. The Executive represents and warrants to the Company that: (i) (A) There are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent or make unlawful the Executive's execution of this Agreement or the Executive's employment under this Agreement, or that is or would be inconsistent, or in conflict with this Agreement or the Executive's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Executive of the obligations under this Agreement; and (B) the Executive has disclosed to the Company all restraints, confidentiality commitments or other employment restrictions that the Executive has with any other employer, person or entity. (ii) Upon and after the Executive's termination or cessation of employment with the Company, and until such time as no obligations of the Executive to the Company hereunder exist, the Executive: (A) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a competing business with whom or which the Executive proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof, provided that Executive shall first cause the compensation amounts hereunder to be deleted or not disclosed; and (B) shall notify the Company of the name and address of any such person, entity or association prior to the Executive's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 11. Legal Fees and Expenses. If it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Executive the benefits provided or intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of Executive's choice at the expense of the Company as hereafter provided, to advise and represent Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Page 18 of 23 Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. Without respect to whether Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys, and related fees and expenses incurred by Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted in bad faith or with no colorable claim of success. Such payments shall be made within five (5) business days after delivery of Executive's written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing provisions of this Section 11, the obligations of the Company under this Section 11 shall not exceed, in the aggregate, $50,000.00. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all applicable taxes that the Company is required to withhold pursuant to any applicable law, regulation or ruling. 13. Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in Charlotte, North Carolina) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions, except as expressly provided in Section 17 and only in the event the Company has not brought an action in a court of competent jurisdiction to enforce the covenants in Section 10. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating the arbitrator's determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Company and the Executive or as the arbitrator equitably determines consistent with the application of state or federal law; provided, however, that the Executive's share of such expenses shall not exceed the maximum permitted by law. Any arbitration or action pursuant to this Section 13 shall be governed by and construed in accordance with the substantive laws of the State of North Carolina and, where applicable, federal law, without giving effect to the principles of conflict of laws of such State. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any actual or threatened breach of the Executive's covenants in Section 10, but may pursue its remedies, including injunctive relief, for such breach in a court of competent jurisdiction in Charlotte, North Carolina, or in the sole discretion of the Company, in Page 19 of 23 a court of competent jurisdiction where the Executive has committed or is threatening to commit a breach of the Executive's covenants, and no arbitrator may make any ruling inconsistent with the findings or rulings of such court. 14. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 14(b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 15. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by an internationally recognized overnight courier service, addressed to the Company (to the attention of the Chief Operating Officer of the Company) at its principal executive office and to Executive at his principal residence, or to such other address as any party may have furnished to the other in Page 20 of 23 writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the state of North Carolina and federal law, without giving effect to the principles of conflict of laws, except as expressly provided herein. In the event the Company exercises its discretion under Section 10(e) to bring an action to enforce the covenants contained in Section 10 in a court of competent jurisdiction where the Executive has breached or threatened to breach such covenants, and in no other event, the parties agree that the court may apply the law of the jurisdiction in which such action is pending in order to enforce the covenants to the fullest extent permissible. 17. Validity. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 10 should be deemed invalid, illegal or unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shall be modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 18. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The headings used in this Agreement are intended for convenience or reference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation shall also include any successor thereto. 19. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 8, 9, 10, 11, 12, 13 and 14(b) will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. Page 21 of 23 20. Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 15. In the event of the Executive's death or a judicial determination of the Executive's incompetence, reference in this Agreement to the "Executive" shall be deemed, where appropriate, to the Executive's beneficiary, estate or other legal representative. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 22. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. [Remainder of Page Intentionally Left Blank] Page 22 of 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first written above. /s/ Larry N. Stern --------------------------------------- Larry N. Stern SCOTTISH RE (U.S.), INC. By: /s/ Oscar Scofield ----------------------------------- Name: Oscar Scofield Title: Chief Operating Officer Page 23 of 23 EX-99.1 11 ex991.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Scottish Annuity & Life Holdings, Ltd. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael C. French, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Michael C. French Michael C. French Chief Executive Officer August 7, 2002 EX-99.2 12 ex992.txt Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Scottish Annuity & Life Holdings, Ltd. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Elizabeth A. Murphy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Elizabeth A. Murphy Elizabeth A. Murphy Chief Financial Officer August 7, 2002 EX-99.3 13 ex993.txt Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Scottish Annuity & Life Holdings, Ltd. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Elizabeth A. Murphy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Scott E. Willkomm Scott E. Willkomm President August 7, 2002 -----END PRIVACY-ENHANCED MESSAGE-----