Exhibit 10.3
RETENTION AND SEVERANCE
AGREEMENT
RETENTION AND SEVERANCE AGREEMENT (this “
Agreemen t”), dated as of May 14, 2007 by and between
21 st
Century Insurance Group, a Delaware corporation (the “
Company ”) and Michael T. Ray (the “
Employee ”).
WHEREAS, Employee is a key employee of
Company;
WHEREAS, Company, American International Group,
Inc., a Delaware corporation (“ Parent ”), and
AIG TW Corp., a Delaware corporation and wholly-owned indirect
subsidiary of Parent (“ Merger Subsidiary ”)
have entered into an Agreement and Plan of Merger, dated as of May
15, 2007 (the “ Merger Agreement ”) pursuant to
which the Merger Subsidiary will merge with and into the Company
(the “ Merger ”);
WHEREAS, pursuant to the consummation of the
transactions contemplated by the Merger Agreement, Employee is
expected to dispose of Employee’s ownership interest in the
Company and receive an early payout of Employee’s interest in
Company’s Supplemental Executive Retirement Plan;
and
WHEREAS, Company desires to provide incentives
for Employee to remain employed by Company and its subsidiaries
following the Closing Date of the Merger as defined in the Merger
Agreement (the “ Closing Date ”).
NOW, THEREFORE, in consideration of the
premises and the mutual covenants herein contained, and intending
to be legally bound hereby, the parties hereto agree as
follows:
1.
Employee’s Duties . Employee shall perform his
duties with Company and its subsidiaries diligently and to the best
of his ability. Employee shall use
1
his
best efforts to assist Company in the integration of the businesses
of Company and Parent and the continued operation of the business
of Company. If, with the consent of Employee, the employment
of Employee is transferred to Parent, all references to
“Company” in this Agreement (other than in the recitals
at the beginning thereof) shall be understood to refer to
“Parent” except where otherwise required by the
context.
2.
Retention Payment . If Employee remains employed by
Company or its subsidiaries on the first anniversary of the Closing
Date, then Company shall pay to Employee in a lump sum within five
(5) business days thereafter, an amount equal to $437,500
(the “ Retention Payment ”).
3.
Termination Prior to Twelve Month Anniversary of Closing
Date .
(a)
If Company and its subsidiaries terminate the employment of
Employee for Cause (as defined herein) prior to the first
anniversary of the Closing Date, or if Employee terminates
employment with Company and its subsidiaries prior to the first
anniversary of the Closing Date for any reason other than Good
Reason (as defined herein), Employee will not be eligible for any
payment under this Agreement.
(b)
If Company and its subsidiaries terminate the employment of
Employee without Cause after the Closing Date and prior to the
first anniversary of the Closing Date, or if Employee terminates
employment with Company and its subsidiaries prior to the first
anniversary of the Closing Date for Good Reason, then subject to
Employee’s continued compliance with Section 8 of this
Agreement and provided Employee does not make an Election (as
defined below), Company shall:
2
(A)
pay to Employee an amount equal to $875,000 (such amount, the
“ Severance ”). The Severance shall be payable
in equal monthly installments (each, a “ Severance
Installment ”) over the twelve (12) month period
commencing no earlier than the second of Company’s standard
payroll dates falling after such termination; provided, however,
that, if necessary to avoid the application of Section 409A of
the Code to the Severance, Employee shall not receive any
installment payment until the first scheduled payroll date that
occurs more than six months following the date of termination of
employment (the “ First Payment Date ”), and, on
the First Payment Date, Company will pay Employee an amount equal
to the sum of all Severance Installments that would have been
payable in respect of the period preceding the First Payment Date
but for the delay imposed on account of the aforementioned
Section 409A; and
(B)
provide continued health and life insurance benefits for Employee
and his spouse and dependents, if any, for a 24 month period
following the date of Employee’s termination of employment,
on the same basis as such benefits were provided during
Employee’s employment with Company; provided, that
Company’s obligation to provide such health and life
insurance benefits shall cease with respect to such benefits at the
time Employee becomes eligible for such benefits from another
employer.
(c)
For purposes of this Agreement, “ Cause ” shall mean, (i) the
continued failure by Employee (other than any such failure
resulting from (A) the Employee’s incapacity due to physical
or mental illness, or (B) the Company’s obstruction of the
performance of the Employee’s duties and responsibilities) to
perform substantially
3
the
duties and responsibilities of Employee’s position with the
Company after a written demand for substantial performance is
delivered to the Employee by the Board of Directors of Company (the
“ Board ”), which demand specifically identifies
the manner in which the Board believes that Employee has not
substantially performed such duties or responsibilities and
suggests corrective action that is capable of being implemented
within a reasonable period; (ii) the conviction, or plea of guilty
or nolo contendere, of Employee by a court of competent
jurisdiction for felony criminal conduct; (iii)
Employee’s intentional misconduct or gross negligence in
connection with Employee’s duties, or an act of fraud or
material act of dishonesty by Employee, or (iv) Employee’s
material violation of a provision of Parent’s Code of
Conduct, as such code of conduct or its equivalent policies may be
in effect from time to time.
(d)
For purposes of this Agreement, “ Good Reason ”
means: (i) a significant adverse change in the nature or scope of
Employee’s Company-related authority or duties, (ii) a
significant reduction in compensation or benefits provided by
Company, or (iii) the geographical location where Employee is
required to perform principal duties is moved to a location more
than fifty (50) miles from such location existing at the date
hereof; provided that, a termination by Employee with Good Reason
shall be effective only if, within sixty (60) days following
Employee’s first becoming aware of the circumstances giving
rise to Good Reason, Employee delivers a notice of termination for
Good Reason by Employee to Company, and Company within thirty (30)
days following its receipt of such notification has failed to cure
the circumstances giving rise to Good Reason. For purposes of this
paragraph 3(d), Employee acknowledges and
4
agrees that Good Reason shall not be deemed to
occur (A) solely on account of Company no longer being a publicly
traded entity, (B) solely as a result of the Merger or (C) as a
result of Employee having to undertake reasonable business travel,
including travel to Delaware to implement the integration of
Company with Parent.
4.
Termination Between First Anniversary and Third Anniversary of
Closing Date . If Company and its subsidiaries
terminate the employment of Employee without Cause between the
first anniversary of the Closing Date and the third anniversary of
the Closing Date, or if Employee terminates employment with Company
and its subsidiaries for Good Reason between the first anniversary
of the Closing Date and the third anniversary of the Closing Date,
then subject to Employee’s continued compliance with Section
8 of this Agreement and provided Employee does not make an Election
(as defined below), Company shall:
(a)
pay to Employee the amount of $437,500 (such total sum shall be
referred to as the “ Subsequent Severance
”). The Subsequent Severance shall be payable in equal
monthly installments over the twelve (12) month period
commencing no earlier than the second of Company’s standard
payroll dates falling after such termination (the “
Subsequent Severance Installments ”); provided,
however, that, if necessary to avoid the application of
Section 409A of the Code to the Subsequent Severance, Employee
shall not receive any installment payment until the First Payment
Date and, on the First Payment Date, Company will pay
Employee an amount equal to the sum of all Subsequent Severance
Installments that would have been payable in respect of the period
preceding the
5
First Payment Date but for the delay imposed on
account of the aforementioned Section 409A; and
(b)
provide continued health and life insurance benefits for Employee
and his spouse and dependents, if any, for a 24 month period
following the date of Employee’s termination of employment,
on the same basis as such benefits were provided during
Employee’s employment with Company; provided, that
Company’s obligation to provide such health and life
insurance benefits shall cease with respect to such benefits at the
time Employee becomes eligible for such benefits from another
employer.
5.
Release . Notwithstanding any other provision of this
Agreement to the contrary, Employee acknowledges and agrees that
any and all payments and benefits to which Employee is entitled
under Sections 3 and 4 of this Agreement are conditioned on and
subject to Employee’s execution of a general release and
waiver, substantially in the form attached as Exhibit A
hereto.
6.
Effect on Severance Benefits . This Agreement contains
the entire understanding of the parties with respect to the subject
matter of this Agreement and, without limiting the effect of the
foregoing, specifically supersedes any individual Retention
Agreement, employment agreement (including, but not limited to, any
individual hire agreement), severance agreement and Company’s
Executive Severance Plan. Notwithstanding the foregoing, nothing in
this Agreement shall affect Employee’s entitlements pursuant
to the Company’s Supplemental Executive Retirement Plan
7.
No Alienation . Employee shall not have any right to
pledge, hypothecate, anticipate or in any way create a lien upon
the benefits provided under this
6
Agreement, and such benefits shall not be
assignable in anticipation of payment whether by voluntary or
involuntary acts, or by operation of law, other than the law of
descent and distribution.
8.
Non-Competition; Non-Solicitation . Employee
acknowledges and recognizes the highly competitive n
|
