CONSULTING AGREEMENT
and
---
MODIFICATION OF STOCK OPTION AGREEMENT
--------------------------------------
This agreement made this 14th day of August 1999 by and between SUNTERRA
CORPORATION, a Maryland corporation (the "Company") and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the
"Executive").
WHEREAS, the Company and the Executive have previously entered into an
Employment Agreement (the "Employment Agreement") dated June 13, 1996 and a
Stock Option Agreement (the "Option Agreement") dated June 13, 1996; and
WHEREAS, the parties desire that the Employment Agreement shall be converted
into a consulting arrangement with the following terms and conditions:
1. Term.
-----
The parties agree that commencing September 1, 1999, Executive's employment
pursuant to the Employment Agreement is terminated and converted into a
Consulting Agreement as detailed herein. Except as expressly provided in
this Consulting Agreement, all provisions of the Employment Agreement are
deleted and superceded and replaced by the provisions of this Consulting
Agreement. The term of this Consulting Arrangement shall continue until
August 31, 2001 (the "Termination Date") or such sooner time as provided in
Section 4, herein. Upon execution of this agreement, Executive has
contemporaneously executed all documents necessary to effectuate his
resignation as an officer and director of Sunterra Corporation, its
subsidiaries and affiliates. Notwithstanding any language to the contrary
contained within the Employment Agreement, Executive's total compensation
for the period between August 1/st/, and August 31st, 1999 including all
base salary and bonuses shall be $28,333. Except for the payments set
forth below, and the $28,333 for August referenced above, Company has no
other monetary obligations to Executive, including payments for vacation,
sick days, discretionary time off , or otherwise, it being agreed that all
such obligations have been fully satisfied by the Company.
2. Duties and Responsibilities.
----------------------------
During the Consulting Period, the Executive agrees to consult with and
advise the Company on any and all matters consistent with his prior duties
that the Company might request including, but not limited to, the areas
covered by the Executive's responsibilities pursuant to Section 3 of the
Employment Agreement, for not less than ten (10) hours per week nor more
than 50 hours per month. Monthly hours are not cumulative. When requested
by the Company, the Executive will make himself
1
available to the Company during the Consulting Period at the Company's
corporate offices located in Orlando, Florida. Executive will also make
himself available, on reasonable notice, at any sites or locations as may
be requested by the Company provided the Company shall reimburse the
Executive for reasonable and customary travel related expenses to all
locations in the same manner as other senior officers. However, after the
first trip each calendar month, each additional trip outside of Chicago,
within that month shall be on mutually convenient dates.
3. Compensation and Related Matters.
---------------------------------
(a) During the Consulting Period, the Company shall pay the Executive
48 consecutive payments payable twice monthly in the amount of
$19,166.66. However, these amounts may be reduced as provided in
this agreement. All consulting fees shall be paid by the Company
in a manner consistent with the standard payroll practices of the
Company (e.g., timing of payments and required deductions or
----
other withholdings). The Executive shall be considered an
independent consultant for purposes of determining appropriate
withholding, unemployment insurance and any other related
matters.
So long as the Executive is not in breach of this agreement, the
Executive is free to pursue other opportunities outside of this
Agreement subject to the confidentiality, non-solicitation and
non-compete provisions contained in this Agreement.
Commencing December 15th, 1999 and every three months thereafter,
the Executive will be required to furnish to the Company a
detailed income statement, in a format acceptable to the Company,
that demonstrates the earned gross income including all
compensation, salary, bonus, stock, stock options, cash, cash
equivalent or any other remuneration earned of any type, for
services rendered by or generated from the Executive's various
employment and consulting activities (hereinafter "income").
Income shall not include out of pocket reimbursements, dividends,
and interest from investments, and payments for those activities
permitted pursuant to Section 3(c) of the Employment Agreement.
The income statement shall reflect income for the following
periods: the quarterly statement due on December 15, 1999,
February 15, 2000, June15, 2000 and September 15, 2000, shall
report all required income from the date of the execution of this
agreement until the end of the most recent quarter. Quarterly
statements due thereafter shall report all income required for
the preceding 12 months. This income statement should be
delivered to the Company no later than 15/th/ of the month
following the end of each quarter. In the event the remuneration
earned is not easily determined and agreed upon, the parties
agree to mutually select an expert for purposes of that
determination.
In the event any income statement indicates income which exceeds
$250,000 for the preceding 12 month period or, for those
reporting periods prior to
2
October 1, 2000, income for the period from September 1, 1999
until the date of the statement, the company shall be entitled to
an offset and credit equal to the full amount of all income shown
for that period. In the event the amount of income for any
reporting period exceeds 250,000 but is less than the full amount
payable to the executive for the remainder of the period of this
Consulting Agreement, the amount of the remaining credit shall be
used to offset future payments required to be made to the
Executive until the credit has been exhausted. In the event the
amount of offset and credits exceed amounts payable by company to
executive for the remainder of this Consulting Agreement, then
this Consulting Agreement shall be deemed to constitute a
promissory note from the executive to the company in an amount
equal to the difference of the amount owed by the Company and the
income shown on the statement without any further notice to the
Executive. The Executive shall be deemed to be the maker/debtor of
such promissory note and Sunterra Corporation, its successors and
assigns, the payee of the note. Further, in such case, the Company
shall not be responsible for any further payments to the
Executive. The note shall bear interest at the rate of 10%, APR
and shall be paid in equal monthly installments in amounts
sufficient to satisfy the note in full within 3 months of the date
of the statement. The provisions of this Section 3(a) are intended
to supercede the provisions contained in Section 6(f) of the
Employment Agreement.
(b) Business Expenses.
------------------
The Company shall reimburse the Executive for reasonable and
customary expenses incurred by the Executive in connection with
the performance and services pursuant to this Consulting Agreement
upon presentation of sufficient evidence of such expenditures
consistent with the Company's policies as may be in place from
time to time.
(c) Other Benefits.
---------------
At the Executive's own expense, the Executive and his dependents
shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
(d) Stock Options.
--------------
Notwithstanding anything to the contrary contained within this
Consulting Agreement, the Employment Agreement or the Option
Agreement described on Exhibit "A" to the Employment Agreement,
(hereinafter "Option Agreement"), the Company and the Executive
hereby agree that Section 3.1(a)(ii) and Section 3.3(b) and (c) of
the Option Agreement are hereby clarified and shall be interpreted
to state that those options that have been granted and which are
exercisable as of August 31, 1999 (namely 459,375) shall continue
to be exercisable during the term of this Consulting Agreement and
shall expire at termination of this Consulting Agreement. Any
options
3
that have been granted but are not exercisable as of August 31, 1999
shall terminate as of the first day of this Consulting Agreement.
However, should an event resulting in Change of Control (as defined in
the Employment Agreement), be publicly announced or a letter of intent
for such event be executed prior to January 31, 2000 and such event
closed by July 31, 2000, such additional shares as would have vested
under the Employment Agreement during the period prior to July 31st,
2000 shall be deemed to have vested according to the schedule set
forth in that Employment Agreement so that the aggregate number of
shares of Common Stock vested should these contingencies occur shall
be 562,500. Nothing contained herein, however, shall require that such
provision be included in any subsequent option agreement that may be
entered into between the Company and the Executive. This Section 3(d)
intended to supercede the provisions of Section 3.3.(c) of the Option
Agreement.
To the extent required, the parties agree to submit this agreement for
ratification by the Compensation Committee (as defined in the Option
Agreement) and if not ratified, this Agreement shall be null and void.
Company agrees to process Executive's exercise of options in the
same fashion and as expeditiously as it normally processes similar
actions for other persons. To the extent that registered shares
are available for issuance upon exercise of the option, Company
will issue registered shares to Executive.
4. Termination.
------------
This Consulting Agreement shall be, or may be, as the case may be,
terminated under the following circumstances.
(a) Death. This Consulting Agreement shall terminate upon the death of
------
the Executive except that in the event this agreement is converted to
a promissory note pursuant to Section 3(a), the obligations of
Executive shall thereafter become an obligation of his estate.
(b) Disability. This Consulting Agreement shall terminate upon the
-----------
physical or mental disability of the Executive which, in the opinion
of a competent physician selected by the Board of Directors of the
Company, renders the Executive unable to perform his duties under this
Consulting Agreement for more than 120 days in any 180-day period.
(c) Cause. The Company may terminate this Consulting Agreement for
------
"cause". Cause shall be defined in Section 5(c) of the Employment
Agreement.
(d) Executive's Termination. The Executive may voluntarily terminate this
------------------------
Consulting Agreement at any time by delivery of a written notice to
the Company (the "Notice of Termination"). The Notice of Termination
shall
4
set forth the dates that termination shall become effective (the
"Date of Termination"), which date shall, in any event, be at least
ten (10) days and no more than thirty (30) days from the date the
Notice of Termination is delivered to the Company. At its option, the
Company may reduce such notice period to any length, upon thirty- (30)
days written notice to the Executive.
(e) Notice. Any termination of this Agreement by the Company shall be
-------
communicated by a written notice of termination to the Executive. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice that shall indicate the specific termination provision in this
Consulting Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Consulting Agreement under the provision so
indicated.
(f) Date of Consulting Termination. "Date of Consulting Termination"
---------------------------------
shall mean (i) if the Consulting Agreement is terminated by death, the
date of death, (ii) if the Consulting Agreement is terminated by
reason of disability, the date of the opinion of the physician
referred to in Section 4(b) above, (iii) if the Consulting Agreement
is terminated by the Company for cause pursuant to Section 4(c) above,
the date specified in the Notice of Termination, and (iv) if the
Executive should terminate this Agreement pursuant to Section 4(d)
above, the Date of Termination.
(g) Termination Obligations. The termination obligations contained in
------------------------
Section 5(h) and 5(i) of the Employment Agreement shall also apply to
a termination of the Consulting Agreement, it being understood that
the phrase "Employment Period" as contained in Section 5(h) of the
Employment Agreement shall be amended to read "Consulting Period."
Compensation upon Termination.
------------------------------
(a) Death. If this Consulting Agreement should be terminated pursuant to
------
Section 4(a), the Company shall, subject to application of the credits
as set forth in Section 3(a), pay the Executive's Personal
Representative pursuant to Section 3(a) the amounts entitled to be
received, by the Executive and according to the same schedule of
payments, (the "Post Consulting Payment"), until August 31, 2001. At
the Executive's own expense, the Executive's dependent shall be
entitled to any continuation of health insurance coverage rights under
any applicable law.
(b) Disability. If this Consulting Agreement should be terminated by
-----------
reason of disability pursuant to Section 4(b), the Executive shall,
subject to application of the credits as set forth in Section 3(a),
receive the Post-Consulting Payment, until the earlier of (i) the
duration of such disability, or (ii) August
5
31, 2001, provided that the payment so made to the Executive during
the disability should be reduced by the sum of the amounts, if any,
payable to the Executive at or prior to the time of any such payment
under any disability benefit plan of the Company. At the Executive's
own expense, the Executive and dependents shall also be entitled to
any continuation of health insurance rights under any applicable law.
(c) Cause. If the Company terminates this Consulting Agreement for Cause
------
pursuant to Section 4(c) hereof, the Company shall, subject to
application of the credits as set forth in Section 3(a), pay the
Executive any accrued consulting fee through the Termination Date. At
the Executive's own expense, the Executive and its dependents shall
also be entitled to any continuation of health insurance coverage
rights under any applicable law.
(d) Executive's Termination. If the Executive terminates this Consulting
------------------------
Agreement for any reason other than "Good Cause" as defined herein,
the Company shall only be required to pay to the Executive, subject to
application of the credits as set forth in Section 3(a), the amounts
of consulting fees described in Sections 3(a) and 3(b) hereof through
the Date of Termination. However, in this event, this agreement is
converted to a promissory note pursuant to Section 3(a) hereof, the
obligations of Executive shall survive until repayment of the note.
In the event the Executive terminates its Consulting Agreement for
"Good Cause," the Company shall pay the Executive the consulting
payment until the expiration date of the Consulting Agreement. If the
Executive terminates this agreement without "Good Cause," the Company
shall have no obligation to compensate the Executive following such
termination. In the event, at the Executive's own expense, the
Executive and his dependents shall be entitled to any continuation of
health insurance coverage rights under any applicable law.
For purposes of this Consulting Agreement, "Good Cause" shall mean a
material breach by the Company of any material provision of this Consulting
Agreement and "Cause" shall mean a material breach by Executive of any
material provision of this Consulting Agreement.
(e) The provisions of Section 6(i) of the Employment Agreement, shall
apply to this Consulting Agreement, by substituting for the term
"Severance Payment" the term "Post-Consulting Payment" and by reading
such provisions to apply to the termination of the Consulting
Agreement hereunder.
6. Personal Computer, Laptop, Weeks.
--------------------------------
Executive shall be permitted to retain the Company's personal computer,
laptop and printer provided that all files, data and information contained
therein shall be downloaded to disk, the disks delivered to the Company and
the files resident on the
6
personal computer and laptops deleted and purged therefrom. Executive shall
be permitted to purchase up to 4 weeks of inventory from Company's
inventory, subject to availability, at a price equal to 40% of retail list.
Confidentiality, Non-Solicitation, Non-Compete and Injunctive Relief. The
---------------------------------------------------------------------
parties acknowledge that the provisions of Sections 7, 8 and 9 of the
Employment Agreement shall equally apply to the provisions of this
Consulting Agreement; provided that the "employment period" shall include
the "consulting period" and that all time periods for obligation of those
Sections 7,8 and 9 shall continue for a period of two years following the
termination of the Consulting Agreement. For two years following execution
of this Agreement, Executive agrees not to talk about, write about or
otherwise publicize any derogatory information or documentation concerning
the business of the Company, the financial affairs of the Company, the
operation of any of the resorts owned or managed by the Company, his
employment with the Company, the termination of his employment, other
Company employees, or the terms or existence of this Agreement unless
required by law or for accounting or tax purposes.
8. Miscellaneous Provisions. The parties acknowledge that the provisions of
-------------------------
Sections 10 (except that the Company's address for notice is hereby changed
to: Sunterra Corporation, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇ ▇▇▇▇), 11, 12, 13,14, 15, 16, 17, 18, 19 and 20 of the Employment
Agreement shall continue to apply during the term of this Consulting
Agreement. Except as modified herein, all terms and conditions of the
Option Agreement shall remain in full force & effect.
9. Indemnification. As a former officer and director of the Company,
----------------
Executive shall be entitled to indemnification by the Company to the full
extent permitted by Maryland law and the Company's articles of
incorporation and by-laws and to coverage under any insurance policies that
may be maintained by the Company from time to time.
ACKNOWLEDGED:
COMPANY:
SUNTERRA CORPORATION,
A Maryland corporation
By: ▇. ▇. ▇▇▇▇▇▇, CEO
---------------------------------
EXECUTIVE:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
7