Exhibit 10.4

 

EXECUTIVE RETENTION AGREEMENT

 

THIS AGREEMENT is entered into this              day of                     ,
2005 (“Effective Date”) by and between SUNTERRA CORPORATION, a
                     corporation (“Company”) and                     
(“Executive”).

 

SECTION 1. Definitions. As used herein, the following words and phrases shall
have the following meanings:

 

“Affiliate” means, with respect to any person or entity, any entity directly or
indirectly controlled by, controlling or under common control with such person
or entity.

 

“Base Salary” means the amount you are entitled to receive as base salary on an
annualized basis under your employment contract or otherwise as in effect
immediately prior to a Change in Control, without reduction for any pre-tax
contributions to benefit plans. Base Salary does not include bonuses,
commissions, overtime pay, shift pay, premium pay, cost of living allowances or
income from stock options, stock grants or other incentives.

 

“Bonus Amount” means an amount equal to your annual cash bonus (expressed as a
percentage of Base Salary) which would have been payable under your employment
contract or otherwise as of immediately prior to the Change in Control had you
continued in employment until the end of the Company’s fiscal year in which the
Change in Control occurs and had bonuses been payable at “target” levels for
such year. The Compensation Committee may, in its discretion, increase the bonus
pool (and, hence, the Bonus Amounts) above target in order to recognize the
extra efforts involved in a Change in Control.

 

“Cause” means (i) your willful and continued failure to substantially perform
your duties on behalf of the Company (other than any such failure resulting from
your incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by you) for a period of at least thirty (30) consecutive days after a
written demand for substantial performance has been delivered to you by the
Board of Directors of the Company (“Board”), which demand specifically
identifies the manner in which the Board believes that you have not
substantially performed your duties, or repeated instances of substantial
non-performance of your duties (i.e. habitual neglect of duties), (ii) your
willful misconduct or gross negligence which is demonstrably and materially
injurious to the Company or any of its subsidiaries, (iii) you are convicted of,
or have entered a plea of nolo contendere to, (x) a felony or (y) any crime
(whether or not a felony) involving dishonesty, fraud, embezzlement or breach of
trust, (iv) your commission of any fraud, embezzlement, misappropriation of
funds or breach of fiduciary duty, in each case of a material nature, or
(v) willful violation of the Company’s written policies. For purposes of clauses
(i) and (ii) of this definition, an act or failure to act on your part shall not
be deemed “willful” if done, or omitted to be done, by you in good faith and
with reasonable belief that your act or failure to act was in the best interest
of the Company and you or any member of your family did not have any pecuniary
interest in the matter (other than indirectly through compensation and benefit
plans of the Company).

--------------------------------------------------------------------------------

“Change in Control” means the occurrence of any of the following:

 

(a) individuals who, on the Effective Date, constitute the Board (the “Incumbent
Directors”) cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to such date, whose
election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors then on the 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) shall be an Incumbent Director; or

 

(b) the consummation of any sale, transfer or other disposition of all or
substantially all of the assets of the Company through one transaction or a
series of related transactions to one or more persons or entities; or

 

(c) any “Person” (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act, or successor sections) is or becomes
a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, or
successor rule), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company’s then
outstanding securities eligible to vote for the election of the Board; or

 

(d) the consummation of a merger, consolidation, reorganization, statutory share
exchange or similar form of corporate transaction involving the Company or any
of its subsidiaries that requires the approval of the Company’s stockholders,
whether for such transaction or the issuance of securities in the transaction,
except any merger or other transaction following which the Company’s
stockholders immediately prior to the merger or other transaction own more than
50% of the combined voting power of the successor corporation; or

 

(e) the stockholders of the Company approve a plan of complete liquidation or
dissolution.

 

“Good Reason” for termination by you of your employment means the occurrence
(without your express written consent) of any one of the following acts by the
Company, or failures by the Company to act, within eighteen (18) months
following the occurrence of a Change in Control:

 

(a) a significant adverse change in your authority, duties, responsibilities or
position (including title or reporting level) from those in effect immediately
prior to the Change in Control; provided that, notwithstanding the foregoing,
the following is not “Good Reason”: (A) an isolated, insubstantial action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by you, or (B) a change in the person to whom (but not
the position to which) you report;

 

(b) a reduction in your annual base salary as in effect immediately prior to the
Change in Control or as the same may be increased from time to time following
the Change in Control, or a reduction in the level of your annual cash bonus
opportunity (expressed as a percentage of Base Salary) as in effect immediately
prior to the Change in Control or as the same may be increased from time to time
following the Change in Control;

 

2

--------------------------------------------------------------------------------

(c) the Company’s requiring you to change the office location at which you are
based by more than 25 miles and which results in you having a commute to such
location from your residence in excess of 50 miles and in excess of 120% (in
miles) of your commute immediately prior to the date of such change of location,
whichever is greater;

 

(d) either (x) the failure by the Company to continue to provide you with
benefits substantially similar in aggregate value (taken as a whole) to those
enjoyed by you under the Company’s life insurance, medical or other health,
accident, disability, 401(k) and vacation plans and programs in which you
participate immediately prior to the Change in Control or (y) the taking of any
action by the Company which would directly or indirectly materially reduce the
aggregate value (taken as a whole) of such benefits enjoyed by you immediately
prior to the Change in Control; or

 

(e) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement.

 

Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder.
Notwithstanding the foregoing, the occurrence of an event that would otherwise
constitute Good Reason hereunder shall cease to be an event constituting Good
Reason if (i) you fail to provide the Company with a Notice of Termination,
including a full description of the occurrence of any of foregoing within the
six-month period immediately following the date on which you first become aware
(or reasonably should have become aware) of the occurrence of such event, or
(ii) you fail to provide the Company with a period of at least thirty (30) days
from the date of such notice to cure such event prior to terminating your
employment for Good Reason; provided, that the thirty-day notice period required
by clause (ii) shall be reduced and end not later than two days prior to the
date that is eighteen (18) months after the Change in Control.

 

“Permanent Disability” means (i) that you are receiving long-term disability
benefits under the disability plan in which you participate as of the
Termination Date, or (ii) if there is no such disability plan, that you have
been substantially unable to perform your duties, services and responsibilities
by reason of a physical or mental infirmity for 180 consecutive days.

 

“Pro-Rata Bonus” means, with respect to the fiscal year in which your
Termination Date occurs, an amount equal to the Bonus Amount multiplied by a
fraction (a) the numerator of which is the number of whole and partial months
that have elapsed in such fiscal year through the Termination Date (counting any
partial month as a whole month for this purpose) and (b) the denominator of
which is twelve; provided, however, that the Pro-Rata Bonus shall be reduced,
but not below zero, to the extent of any annual cash bonus you receive from the
Employer in respect of the fiscal year in which the Termination Date occurs.

 

3

--------------------------------------------------------------------------------

SECTION 2. Severance Entitlement.

 

(a) Subject to Sections 2(b) and 2(c), you shall be entitled to receive from the
Company the severance benefits described in Section 3 (“Severance Benefits”) if
(i) a Change in Control has occurred and (ii) within eighteen (18) months
thereafter, your employment with the Employer terminates for any reason, except
that, notwithstanding the foregoing provisions of this Section 2(a), no
Severance Benefits under Section 3 shall be payable to you should your
termination of employment be (A) initiated by the Employer for Cause or Cause
exists, (B) by reason of Permanent Disability, (C) initiated by you other than
for Good Reason or (D) by reason of your death.

 

(b) For purposes of determining your and the Company’s rights and obligations
under this Agreement, your transfer of employment from the Company to one of its
Affiliates, or from such an Affiliate to the Company, in each case whether
before or after the Change in Control, shall not constitute a termination of
employment for purposes of this Agreement.

 

(c) This Agreement shall terminate, without any notice or further action of any
party, and any rights hereunder shall also terminate, if, prior to a Change in
Control (but subject to Sections 2 and 6), you are not employed in the same or
higher position as your current position as of the Effective Date or (ii) if
your employment is terminated under circumstances where you are not entitled to
Severance Benefits under the terms of this Agreement.

 

(d) If (i) your employment is terminated by the Company without Cause within 6
months prior to the date of a Change in Control or (ii) an action is taken with
respect to you prior to the date of a Change in Control that would constitute
Good Reason if taken after a Change in Control, and you reasonably demonstrate
that such termination or action (A) was at the request of a third party that has
indicated an intention or taken steps reasonably calculated to effect a Change
in Control or (B) otherwise arose in connection with, or in anticipation of, a
Change in Control that has been threatened or proposed, such termination or
action shall be deemed to have occurred after such Change in Control for
purposes of this Agreement so long as such Change in Control actually occurs.

 

SECTION 3. Amount of Severance Benefits.

 

(a) Subject to your entitlement under Section 2 and Sections 3(b) and 3(c), the
severance benefits provided under this Agreement shall be as follows:

 

(i) The Company shall pay to you a Pro-Rata Bonus in a lump sum within thirty
(30) days following the Termination Date.

 

(ii) The Company shall pay to you, as severance pay and in lieu of any further
Base Salary for periods subsequent to the Termination Date, an amount of cash
equal to the sum of (A) the Base Salary and (B) the Bonus Amount, with such
severance pay to be paid in substantially equal installments over one year.

 

4

--------------------------------------------------------------------------------

(iii) For one year following your Termination Date (“Continuation Period”), the
Company shall continue, on behalf of you and your dependents and beneficiaries,
the medical, dental and life insurance benefits that were being provided to you
and such dependents and beneficiaries under the Company’s applicable medical,
dental, vision and life insurance plans immediately prior to the Change in
Control or, if greater, as of the Termination Date. The Company shall pay the
cost of such coverage to the same extent, and the terms and conditions of such
coverage shall be the same, as applicable to similarly situated active employees
of the Company and its subsidiaries during the Continuation Period. Following
the Continuation Period, you and your dependents and beneficiaries shall be
eligible to elect medical and/or dental continuation coverage pursuant to
Section 601 of ERISA and Section 4980B of the Code (or equivalent non-U.S. law
provisions), and the cost of such medical and dental continuation coverage shall
be the same as is charged to terminated former salaried U.S.-based employees of
the Company and its subsidiaries during such period. The obligation under this
Section 3(a)(iii) with respect to the foregoing benefits shall be reduced to the
extent that you obtain any such benefits pursuant to a subsequent employer’s
benefit plans, in which case the Company may reduce or eliminate the coverage
and benefits it is required to provide you hereunder as long as the aggregate
coverages and benefits of the combined benefit plans are no less favorable to
you than the coverage and benefits required to be provided hereunder.

 

(b) Except as provided in the last sentence of Section 3(a)(iii), you shall not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the Executive
in any subsequent employment.

 

(c) Any action taken by the Company or any of its Affiliates that (i) forms a
basis of your termination of employment for Good Reason or (ii) is taken
following the provision of a Notice of Termination and would constitute Good
Reason shall be disregarded in calculating the payments and benefits to be
provided pursuant to this Section 3.

 

SECTION 4. Termination.

 

4.1 Notice of Termination. Any purported termination of employment, whether by
the Company or by you, shall be communicated by a written notice to the other
(“Notice of Termination”). A Notice of Termination shall indicate the specific
provisions in this Agreement relied upon as the basis for any termination of
employment and set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated. No purported termination of employment shall be
effective without a Notice of Termination. The Notice of Termination shall
include a proposed date of termination.

 

5

--------------------------------------------------------------------------------

4.2 Date of Termination. The date of your termination of employment
(“Termination Date”) shall be (i) your date of death or (ii) if earlier, the
date specified in a Notice of Termination, subject to the following provisions
of this Section.

 

(a) If your employment is terminated by the Company for Cause, the date
specified in the Notice of Termination shall be at least 15 days from the date
the Notice of Termination is given to you.

 

(b) If your employment is terminated by the Company due to Permanent Disability,
the date specified in the Notice of Termination shall not be earlier than the
date that the Company has determined you have incurred a Permanent Disability
(and your Termination Date, by itself, shall have no effect on any disability
benefits to which you may otherwise be entitled, provided that in the case of
Permanent Disability you shall not have returned to the full-time performance of
your duties during such period.

 

(c) If you terminate employment for Good Reason, the date specified in the
Notice of Termination shall not be less than thirty (30) days from the date the
Notice of Termination is given to the Company.

 

(d) You shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding any members of the Board who are employees of the Company in a
position that is subordinate to you or others at your level of management
authority) at a meeting of the Board (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding in good faith that you have committed Cause as set forth in such clauses
and specifying the circumstances constituting Cause.

 

4.3 Transition Period. In no event shall you be entitled to resign for Good
Reason prior to the 60th day following a Change in Control without the prior
written consent of the Board, but you shall be entitled to resign thereafter
based on events constituting Good Reason during such 60-day period. If you
terminate employment for Good Reason, the Company may, in its discretion,
require you to remain employed for transition purposes for not more than thirty
(30) days after the date of termination set forth in the Notice of Termination
(such period, the “Extension Period”). If the Company elects to continue your
employment during the Extension Period, then your salary and employee benefits
during the Extension Period shall be the same as in effect prior to the
commencement of the Extension Period. Your Severance Benefits shall not be
forfeitable by you under this Agreement by reason of any act or failure to act
by you except for any act or failure to act prior to the commencement of the
Extension Period that constitutes Cause; provided, however, that nothing herein
shall or shall be construed to waive or otherwise limit in any way any rights or
remedies that the Company may have against you with respect to any of your acts
or failures to act.

 

SECTION 5. Parachute Gross-Up.

 

(a) Any other provision in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution in the nature
of

 

6

--------------------------------------------------------------------------------

compensation (within the meaning of Section 280G(b)(2) of the Code) to you or
for your benefit, whether paid or payable pursuant to this Agreement or
otherwise (“Payment”) would be subject to the excise tax imposed by Section 4999
(“Excise Tax”) of the Internal Revenue Code of 1986, as amended (“Code”), then
you shall be entitled to receive an additional payment (the “Gross-Up Payment”)
in an amount such that, after payment by you of all taxes (and any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income or employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. The Company’s obligation to make Gross-Up Payments under this Section
shall not be conditioned upon your termination of employment.

 

(b) Subject to the provisions of Section 5(c), all determinations required to be
made under this Section, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by the Company’s independent
accounting firm (the “Accounting Firm”). The Accounting Firm shall provide
detailed supporting calculations both to the Company and you within thirty
business days of the receipt of notice from you that there has been a Payment or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Company shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5, shall be paid by the Company to you within thirty days of the receipt
of the Accounting Firm’s determination or, if later, at least 5 days prior to
the date such payment to the IRS is due. Any determination by the Accounting
Firm shall be binding upon the Company and you. In the event any Gross-Up
Payments have not been made by the Company but should have been made (the
“Underpayment”), after the Company exhausts its remedies pursuant to
Section 5(c) and you thereafter are required to make a payment of any Excise
Tax, (i) the Accounting Firm shall determine the amount of the Underpayment that
has occurred and (ii) any such Underpayment shall be promptly paid by the
Company to or for the benefit of you.

 

(c) You shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as practicable, but
no later than ten business days after you is informed in writing of such claim.
You shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. You shall not pay such claim prior to the
expiration of the thirty-day period following the date on which you gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies you
in writing prior to the expiration of such period that the Company desires to
contest such claim, you shall:

 

(i) give the Company any information reasonably requested by the Company
relating to such claim,

 

7

--------------------------------------------------------------------------------

(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 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 additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold you harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest, and, at its
sole discretion, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the applicable taxing authority in
respect of such claim and may, at its sole discretion, either pay the tax
claimed to the appropriate taxing authority on behalf of you and direct you to
sue for a refund or contest the claim in any permissible manner, and you 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 pays such claim
and directs you to sue for a refund, the Company shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties) imposed with respect to such payment or with respect to
any imputed income in connection with such payment; and provided, further, that
any extension of the statute of limitations relating to payment of taxes for the
taxable year of you with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which the
Gross-Up Payment would be payable hereunder, and you 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.

 

(d) If, after the receipt by you of a Gross-Up Payment or payment by the Company
of an amount on your behalf pursuant to Section 5(c), you become entitled to
receive any refund with respect to the Excise Tax to which such Gross-Up Payment
relates or with respect to such claim, you shall (subject to the Company’s
complying with the requirements of Section 5(c), if applicable) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after payment by the
Company of an amount on your behalf pursuant to Section 5(c), a determination is
made that you shall not be entitled to any refund with respect to such claim and
the Company does not notify you in writing of its intent to

 

8

--------------------------------------------------------------------------------

contest such denial of refund prior to the expiration of 30 days after such
determination, then the amount of such payment shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

 

Notwithstanding any other provision of this Section 5, the Company may, in its
sole discretion, withhold and pay over to the Internal Revenue Service or any
other applicable taxing authority, for your benefit, all or any portion of any
Gross-Up Payment, and you hereby consent to such withholding and payment.

 

SECTION 6. Restrictive Covenants. The Company’s obligation to make payments to
you under Section 2 shall be subject to your compliance with this Section 6.

 

6.1 Nondisclosure of Confidential Information. You, except in connection with
your employment by the Company, shall not disclose to any person or entity or
use any information not in the public domain or generally known in the industry,
in any form, acquired by you while employed by the Company or any predecessor to
the Company’s business, relating to the Company, including but not limited to
information regarding customers, vendors, suppliers, trade secrets, training
programs, manuals or materials, technical information, contracts, systems,
procedures, mailing lists, know-how, trade names, improvements, price lists,
financial or other data (including the revenues, costs or profits associated
with any of the Company’s products or services), business agreements, code
books, invoices and other financial statements, computer programs, software
systems, databases, discs and printouts, agreements (business, technical or
otherwise), customer and industry lists, correspondence, internal reports,
personnel files, sales and advertising material, telephone numbers, names,
addresses or any other compilation of information, written or unwritten, which
is or was used in the business of the Company (collectively, “Confidential
Information”), provided that you may retain a copy of your Rolodex or any other
personal telephone database established and maintained by you. You agree and
acknowledge, by your acceptance of payments under Section 2, that all
Confidential Information, in any form, and copies and extracts thereof, are and
shall remain the sole and exclusive property of the Company, and upon
termination of your employment with the Company, you shall return to the Company
the originals and all copies of any Confidential Information provided to or
acquired by you in connection with the performance of your duties for the
Company, and shall return to the Company all Confidential Information and all
files, correspondence and/or other communications received, maintained and/or
originated by you during the course of your employment.

 

6.2 Non-Solicitation of Employees. You shall not directly or indirectly hire,
employ, solicit, raid, entice or induce any person who, on or within the last
six (6) months preceding the Termination Date, is or was an employee of the
Company or any Affiliate to (i) become employed by any person, firm, corporation
or other entity, or (ii) to terminate their employment with the Company or any
Affiliates, except (i) on behalf of and for the benefit of the Company and
Affiliates, (ii) pursuant to any general solicitation of individuals that is not
directed towards any such current or former employees of the Company or any
Affiliate and without any involvement by you, or (iii) in connection with your
employment with the Company; including without limitation, job references for
former employees or employees who have been provided notice of termination. In
addition, you shall not approach any such employee for such purpose or authorize
or knowingly approve the taking of such actions by any other person.

 

9

--------------------------------------------------------------------------------

6.3 Non Competing Employment. You acknowledge that the agreements and covenants
contained in this Section 6.3 are essential to protect the value of the
Company’s business and assets and, by your current employment with the Company,
that you have obtained and will obtain such knowledge, contacts, know-how,
training and experience that could be used to the substantial advantage of a
competitor of the Company and to the Company’s substantial detriment. Therefore,
you agree that for the one-year period commencing on your Termination Date (such
period is hereinafter referred to as the “Restricted Period”) you shall not
participate or engage, directly or indirectly, for yourself or on behalf of or
in conjunction with any person, partnership, corporation or other entity,
whether as an employee, agent, officer, director, shareholder, partner, joint
venturer, investor, lender, advisor, consultant or otherwise, in any business
activity if such activity consists of any activity that, as of your Termination
Date, is undertaken by the Company or is expressly contemplated to be undertaken
by the Company.

 

SECTION 7. Amendment and Termination.

 

7.1 This Agreement may be amended or modified in any respect, and may be
terminated, in any such case by resolution adopted by a majority of the
Compensation Committee of the Board of Directors of the Company (“Board”);
provided, however, that no such amendment, modification or termination that
would adversely affect the benefits or protections provided to you hereunder
shall be effective unless no Change in Control occurs within one year after such
adoption, any such attempted amendment, modification or termination adopted
within one year prior to a Change in Control being null and void ab initio as it
relates to you (it being understood, however, that, subject to Section 2(d), the
hiring, termination of employment, promotion or demotion of you by the Company
or any of its Affiliates prior to a Change in Control shall not be construed to
be an amendment, modification or termination of the Agreement); provided,
further, however, that the Agreement may not be amended, modified or terminated,
(i) at the request of a third party who has indicated an intention or taken
steps to effect a Change in Control and who effectuates a Change in Control or
(ii) otherwise in connection with, or in anticipation of, a Change in Control
which actually occurs, any such attempted amendment, modification or termination
being null and void ab initio. From and after (i) the execution of an agreement
providing for a transaction or transactions which, if consummated, would
constitute a Change in Control (until such agreement terminates) or (ii) the
occurrence of a Change in Control, this Agreement may not be amended or modified
in any manner that would in any way adversely affect the benefits or protections
provided hereunder you.

 

7.2 Form of Amendment. The form of any amendment or termination of the Agreement
in accordance with this Section 7 hereof shall be a written instrument signed by
a duly authorized officer or officers of the Company, certifying that the
amendment or termination has been approved by the Compensation and Benefits
Committee of the Board.

 

10

--------------------------------------------------------------------------------

SECTION 8. Miscellaneous.

 

8.1 Successors. This Agreement shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Agreement if no succession had taken place. In the case of any transaction in
which a successor would not by the foregoing provision or by operation of law be
bound by this Agreement, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the obligations of the Company
and each Employer under this Agreement, in the same manner and to the same
extent that the Company and each Employer would be required to perform if no
such succession had taken place.

 

8.2 Legal Fees and Expenses. The Company shall pay all reasonable legal fees and
related expenses (including the costs of experts, evidence and counsel)
reasonably and in good faith incurred by you if you prevail on a claim for
relief in an action (i) by you to obtain or enforce any right or benefit
provided by this Agreement or (ii) by the Company to enforce post-termination
covenants against you.

 

8.3 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Company any obligation to retain you as an employee
or to retain you in your current position or at a similar level, or to restrict
the Company from changing any of its employment policies.

 

8.4 Withholding of Taxes. The Company shall withhold from any amounts payable
under this Agreement all federal, state, local or other taxes that are legally
required to be withheld.

 

8.5 No Effect on Other Benefits. Severance Benefits shall not be counted as
compensation for purposes of determining benefits under other benefit plans,
programs, policies and agreements, except to the extent expressly provided
therein or herein. No duplication of severance benefits shall occur, and any
other severance benefits shall be reduced by severance benefits paid under this
Agreement.

 

8.6 Validity and Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, and any prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

 

8.7 Settlement of Claims. The Company’s obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, defense, recoupment, or other right which the Company may
have against you or others.

 

8.8 Unfunded Obligation. All Severance Benefits hereunder shall constitute an
unfunded obligation of the Company. Payments shall be made, as due, from the
general funds of the Company. This Agreement shall constitute solely an
unsecured promise by the Company

 

11

--------------------------------------------------------------------------------

to provide such benefits to you to the extent provided herein. For avoidance of
doubt, any pension, health or life insurance benefits to which you may be
entitled under this Agreement shall be provided under other applicable employee
benefit plans of the Company. This Agreement does not provide the substantive
benefits under such other employee benefit plans, and nothing in this Agreement
restricts the Company or any affiliate thereof from amending, modifying or
terminating such other employee benefit plans (whether before or after a Change
in Control (but subject to events constituting Good Reason following a Change in
Control)).

 

8.9 Governing Law. This Agreement is intended to be an individual agreement
subject to negotiation between the parties and is not intended to be an employee
welfare benefit plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”). This Agreement and all rights
hereunder shall be governed and construed in accordance with the laws of the
state of Maryland, wherein venue shall lie for any dispute arising hereunder.
Without limiting the generality of this Section 8.9, it is intended that this
Agreement comply with Section 409A of the Code, and, in the event that this
Agreement is determined to be a “deferred compensation agreement” within the
meaning of Section 409A(d)(1) of the Code, the Compensation Committee shall, as
necessary, adopt such conforming amendments as are necessary to comply with
Section 409A of the Code without reducing the Severance Benefits due to you
hereunder.

 

8.10 Assignment. This Agreement shall inure to the benefit of and shall be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount is still payable to you under this Agreement had you
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your estate. Your rights
under this Agreement shall not otherwise be transferable or subject to lien or
attachment.

 

8.11 In Lieu of Contractual Severance. Payment under this Agreement is intended
to replace any contractual severance otherwise payable under your employment
agreement, if any, with the Company or any of its affiliates as a result of a
Change in Control, and you, as a condition to receiving Payments pursuant to
this Agreement, shall be required to waive any severance otherwise payable by
the Company. Except as set forth in the previous sentence, in the event of any
conflict between the terms and conditions of this Agreement and the terms and
conditions of your employment agreement with the Company or any of its
affiliates, the terms and conditions that are most favorable to you shall be
controlling.

 

12

--------------------------------------------------------------------------------

SUNTERRA CORPORATION By:  

 

--------------------------------------------------------------------------------

Name:     Title:     By:  

 

--------------------------------------------------------------------------------

Name:     Title:   Executive

 

13