Document:

EX-10.1:

 

Ex. 10(1)

EMPLOYMENT AGREEMENT

          EMPLOYMENT AGREEMENT (this “Agreement”), is entered into as of June 27, 2005, by and
between American International Group, Inc., a Delaware corporation (the “Company”), and
Martin J. Sullivan (“Executive”).

          WHEREAS, Executive is currently employed by the Company as its President and Chief Executive
Officer pursuant to that certain employment letter dated as of March 16, 2005 (the “Employment
Letter”); and

          WHEREAS, as of the date of this Agreement, the Company wishes to continue Executive’s
employment as President and Chief Executive Officer under the terms of a new employment agreement
on the terms set forth herein, which shall supersede the Employment Letter; and

          WHEREAS, Executive desires to enter into such agreement; and

          WHEREAS, Executive’s employment as the Company’s President and Chief Executive Officer is a
promotion from his position with the Company prior to March 14, 2005, and the Board of Directors of
the Company (the “Board”) has acknowledged that Executive has been performing his duties as
President and Chief Executive Officer under conditions at the Company that are demanding both in
terms of the time commitment required and the unique circumstances facing the Company as of the
date of this Agreement.

          NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other
good and valuable consideration, the parties hereby agree as follows:

          1. Term of Employment. Subject to the provisions of Section 9 of this Agreement, this
Agreement shall be effective for a term commencing as of March 14, 2005 (the “Effective
Date”) and ending on the day immediately preceding the third anniversary of the Effective Date
(the “Employment Term”).

          2. Position.

               (a) Executive shall serve as President and Chief Executive Officer of the Company. In such
position, Executive shall have such duties and authority as are consistent therewith. Executive
shall report to the Board.

               (b) During the Employment Term, Executive will devote his full business time and best efforts
to the performance of his duties hereunder and will not engage in any other business, profession or
occupation for compensation or otherwise which would conflict or interfere with the rendition of
such services, either directly or indirectly, without the prior written consent of the Board;
provided, that nothing herein shall preclude Executive, subject to the prior approval of the Board,
from accepting appointment to or continuing to serve on any board of directors or trustees of any
business corporation or any charitable or not-for-profit organization or from managing his
personal, financial and legal affairs; provided, in each case,

 

 

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and in the aggregate, that such activities do not conflict or interfere with the performance
of Executive’s duties hereunder or conflict with Section 11 of this Agreement in any material
respect.

          3. Base Salary and Non-Variable Compensation.

               (a) Base Salary. During the Employment Term, the Company shall pay Executive a base
salary (the “Base Salary”) at the annual rate of $1,000,000, payable in regular
installments in accordance with the Company’s usual payroll practices. The Base Salary shall be
retroactive to the Effective Date. During the Employment Term, the Compensation Committee of the
Board (the “Compensation Committee”) shall review the Base Salary annually and may increase
the Base Salary, and the term “Base Salary” shall refer to such increased amount.

               (b) Non-Variable Compensation. Executive shall receive an additional cash payment
with respect to each of fiscal years 2005, 2006 and 2007, in addition to any other amounts
described in this Agreement, in an amount equal to the excess, if any, of (i) $1,125,000 over (ii)
the aggregate of all (A) supplemental quarterly interim cash bonuses in respect of the Company’s
long-term compensation arrangements or otherwise paid in respect of the applicable fiscal year,
which shall be paid consistent with past practice, (B) payments, if any, during the applicable
fiscal year for service as a director of C.V. Starr & Co., Inc. (“Starr”) and Starr
International Company, Inc. and (C) cash dividends received in respect of the fiscal year, or with
respect to the prior fiscal year to the extent not previously taken into account in respect of this
clause (C), on common and preferred stock of Starr held by Executive, which compensation shall be
paid no later than March 31 of the fiscal year following each of fiscal years 2005, 2006 and 2007.
This amount shall be payable in respect of fiscal year 2007 irrespective of the expiration of the
Employment Term on the day immediately preceding the third anniversary of the Effective Date, if
such amount has not been paid by such time.

          4. Bonuses.

               (a) Transition Bonus. The Company shall pay Executive a transition bonus, in cash, in
an amount equal to $4,875,000 (the “Transition Bonus”), which shall be paid in four equal
installments on, or as soon as reasonably practicable following, each of the following dates,
whether or not Executive is employed by the Company on such dates, unless Executive’s employment
has been terminated by the Company for “Cause” or by Executive without “Good Reason” (as such terms
are defined below): (i) the date Executive and the Company sign this Agreement, and (ii) the last
day of each of the second, third and fourth fiscal quarters of the Company in 2005. If Executive’s
employment is terminated for any reason other than by the Company for Cause or by Executive without
Good Reason before any payment date set forth in the preceding sentence, then, if necessary to
avoid the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), to any such unpaid portion of the Transition Bonus, Executive shall not receive
any such amounts 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, the Company will pay Executive an amount equal to the sum of all amounts that would have been
payable following termination of

 

 

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employment in respect of the period preceding the First Payment Date but for the delay imposed
on account of the aforementioned Section 409A.

               (b) Annual Bonus. Executive may receive an additional annual cash bonus in respect of
each full or partial fiscal year of the Company during the Employment Term, as determined in the
sole discretion of the Compensation Committee based on its assessment of Company and individual
performance in relation to performance targets, a subjective evaluation of Executive’s performance
and/or such other criteria as may be established by it (the “Annual Bonus”).
Notwithstanding the foregoing, during the Employment Term, Executive shall be eligible, with
respect to each of fiscal years 2006 and 2007, for an annual cash bonus based on the attainment of
targets established by the Compensation Committee, which, together with the target value of any
long-term or equity-based award in respect of such year (as described in Section 5), shall have a
total target value of $12,875,000.

          5. Long-Term and Equity-Based Incentives. During the Employment Term, Executive shall
be eligible to participate in any long-term incentive compensation plans or equity-based
compensation plans maintained by the Company on such basis as may be determined by the Compensation
Committee; provided that, as of a date that is not later than March 31, 2006, Executive shall be
granted awards in respect of fiscal year 2005 having a value, determined at the date of grant, as
reasonably determined by the Compensation Committee, of no less than the excess of (A) $8,000,000
over (B) the sum of (i) the grant date value (as reasonably determined by the Compensation
Committee in the same manner) of Company stock options and other equity awards granted to Executive
no later than December 31, 2005, in respect of fiscal year 2005, (ii) the annualized fiscal year
2005 grant value (as reasonably determined by the Compensation Committee) of any award made to
Executive pursuant to a Company arrangement intended to be in lieu of Executive’s participation in
the Starr International Company, Inc. Deferred Compensation Profit Participation Plan and (iii) the
value (as reasonably determined by the Compensation Committee) of any additional shares of
preferred stock awarded to Executive with respect to fiscal year 2005 by Starr and any growth in
book value in respect of 2005 attributable to any common stock of Starr held by Executive. In the
event that any shares pursuant to clause (iii) of the preceding sentence have not been awarded, or
increase in book value determined, by Starr by March 31, 2006, the Company shall grant Executive a
long-term or equity-based award having a value, as reasonably determined by the Compensation
Committee, equal to the excess of (X) $8,000,000 over (Y) the value of the awards described in
clauses (i) and (ii) of the preceding sentence. Notwithstanding anything to the contrary in this
Section 5, during the Employment Term, Executive shall be eligible, with respect to each of fiscal
years 2006 and 2007, for a long-term or equity-based award, which, together with any annual cash
bonus target in respect of such year (as described in Section 4(b)), shall have a total target
value (as reasonably determined by the Compensation Committee) of $12,875,000. The amount actually
awarded in respect of 2006 and 2007 shall be offset by the value of (I) awards described in clause
(B) of the first sentence of this Section 5, but substituting 2006 or 2007, as applicable, for 2005
in such clause and (II) any shares awarded, or increase in book value determined, in accordance
with such clause (B) in respect of the applicable year but later than March 31 of the subsequent
year.

 

 

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          6. Employee Benefits. During the Employment Term, Executive shall be entitled to
participate in the Company’s employee benefit plans (other than any severance or change-in-control
plan) as in effect from time to time on the same basis as those benefits are generally made
available to other senior executives of the Company.

          7. Vacation. Executive shall be entitled to four (4) weeks annual paid vacation in
accordance with the vacation policy of the Company.

          8. Business Expenses and Perquisites.

               (a) Expenses. During the Employment Term, reasonable business expenses incurred by
Executive in the performance of his duties hereunder shall be reimbursed by the Company in
accordance with Company policies.

               (b) Perquisites. During the Employment Term, Executive shall be entitled to
participate in all of the Company’s perquisite plans, programs and arrangements that are generally
provided by the Company to other senior executives from time to time, including, without
limitation, the provision of financial and tax planning assistance.

          9. Termination. Notwithstanding any other provision of the Agreement:

               (a) For Cause by the Company. The Employment Term, and Executive’s employment
hereunder, may be terminated at any time by the Company for Cause upon delivery of a “Notice of
Termination” (as defined in Section 9(f)) by the Company to Executive. For purposes of this
Agreement, “Cause” shall mean, whether occurring prior to, or on or after the Effective
Date, (i) Executive’s willful and continued failure to perform substantially his duties with the
Company (other than any such failure resulting from Executive’s incapacity due to physical or
mental illness) for a period of 10 days after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the manner in which the Board
believes that Executive has not substantially performed Executive’s duties, (ii) Executive’s
willful malfeasance or willful misconduct that results in substantial damage to the Company, (iii)
Executive’s willful and material violation of a material provision of the Company’s Code of Conduct
or the Director, Executive Officer and Senior Financial Officer Code of Business Conduct and
Ethics, as such codes of conduct may be in effect from time to time, or other policies regarding
behavior of employees, (iv) conviction of, or entry of a plea of guilty or no contest by Executive
with respect to, a felony or any lesser crime of which fraud or dishonesty is a material element,
(v) any willful failure by Executive to comply with a material provision of Section 11 of this
Agreement, or (vi) Executive’s breach of Section 14 of this Agreement.

               For purposes of this provision, no act or failure to act on the part of Executive, shall be
considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without
reasonable belief that Executive’s action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be

 

 

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done, by Executive in good faith and in the best interests of the Company. The cessation of
employment of Executive shall not be deemed to be for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a simple
majority of the members of the Board (other than Executive, if he is a member of the Board) at a
meeting of the Board called and held for such purpose (after reasonable notice is provided to
Executive, and Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive is guilty of the conduct
described in clauses (i), (ii), (iii), (v) or (vi) above, and specifying the particulars thereof in
detail; provided, that, no such resolution shall be required for any termination for Cause due to
the conduct described in clause (iv) above.

               If Executive is terminated for Cause pursuant to this Section 9(a), he shall be entitled to
receive only his Base Salary through the date of termination and reimbursement for any unreimbursed
business expenses properly incurred by Executive in accordance with Company policy through the date
of Executive’s termination, and he shall have no further rights to any compensation (including any
Base Salary, Transition Bonus, Annual Bonus (including any Annual Bonus that has been declared but
not yet paid), payments from the Company pursuant to Section 3(b) of this Agreement or any
long-term or equity-based compensation awards) or any other benefits under this Agreement. All
other benefits, if any, due Executive following Executive’s termination of employment for Cause
pursuant to this Section 9(a) shall be determined in accordance with the plans, policies and
practices of the Company; provided, however, that Executive shall not participate in any severance
plan, policy or program of the Company.

               (b) Disability or Death. The Employment Term, and Executive’s employment hereunder,
shall terminate immediately upon Executive’s death or following delivery of a Notice of Termination
by the Company to Executive if Executive becomes physically or mentally incapacitated and is
therefore unable for a period of ninety (90) consecutive days or one-hundred twenty (120) days
during any consecutive six (6) month period to perform his duties with substantially the same level
of quality as immediately prior to such incapacity (such incapacity is hereinafter referred to as
“Disability”). Upon termination of Executive’s employment hereunder for either Disability
or death, Executive or Executive’s estate (as the case may be) shall be entitled to receive (i) his
Base Salary through the last day of the payroll period during which such termination occurs; (ii)
any declared but unpaid Annual Bonus for any fiscal year preceding the year in which the
termination occurs; (iii) reimbursement for any unreimbursed business expenses properly incurred by
Executive in accordance with Company policy through the date of Executive’s termination (the sum of
(i), (ii) plus (iii), the “Accrued Obligations”); (iv) a pro rata portion of any Annual
Bonus that Executive would have been entitled to receive pursuant to Section 4(b) of this Agreement
with respect to the fiscal year of termination based upon the percentage of the fiscal year that
shall have elapsed through the date of Executive’s termination of employment, and determined by
using (X) the Transition Bonus, if such termination occurs during fiscal year 2005, and reducing
the pro rata portion of the Transition Bonus by the aggregate amount of all installments of the
Transition Bonus that have been paid through the date of termination, or (Y) Executive’s target
Annual Bonus for the fiscal year of such termination, if such termination occurs following the end
of fiscal year 2005 (the “Pro-Rata Bonus”), payable as soon as reasonably practicable
following the date of Executive’s

 

 

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termination of employment, and (v) in the case of a termination due to Disability,
continuation of the Base Salary in effect on the date of termination until the earlier of (A) the
second anniversary of the date of termination, and (B) the date Executive is eligible to commence
receiving payments under the Company’s long-term disability policy. Notwithstanding the foregoing,
in the event of Executive’s termination of employment due to Disability, if necessary to avoid the
application of Section 409A of the Code to the amounts payable pursuant to clauses (iv) and (v) of
the preceding sentence, Executive shall not receive any such amounts until the First Payment Date
and, on the First Payment Date, the Company will pay Executive an amount equal to the sum of all
amounts 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. Executive or Executive’s
estate (as the case may be) shall have no further rights to any compensation (including any Base
Salary, Annual Bonus, payments under Section 3(b) of this Agreement or any long-term or
equity-based compensation awards) or any other benefits under this Agreement. All other benefits,
if any, due Executive following Executive’s termination for Disability or death shall be determined
in accordance with the plans, policies and practices of the Company; provided, however, that
Executive (or his estate, as the case may be) shall not participate in any severance plan, policy
or program of the Company.

               (c) Without Cause by the Company or for Good Reason by Executive. The Employment Term,
and Executive’s employment hereunder, may be terminated by the Company without Cause (other than by
reason of Executive’s Disability) following the delivery by the Company of a Notice of Termination
to Executive or by Executive for Good Reason following the delivery by Executive of a Notice of
Termination to the Company. The expiration of the Employment Term on the date immediately
preceding the third anniversary of the Effective Date shall not be considered a termination without
Cause under this Agreement or otherwise result in the payment of severance or post-employment
benefits pursuant to Section 9(c) of this Agreement if Executive is not otherwise terminated
pursuant to Section 9(c) of this Agreement prior to such date. If Executive’s employment is
terminated by the Company without Cause (other than by reason of Disability) or by Executive for
Good Reason, Executive shall be entitled to receive:

                    (i) within five (5) business days following termination, a lump sum payment in an amount equal
to the Accrued Obligations;

                    (ii) the Pro-Rata Bonus, payable as soon as reasonably practicable following the date of
Executive’s termination of employment; provided, that, if necessary to avoid the application of
Section 409A of the Code to the Pro Rata Bonus, Executive shall not receive any such Pro Rata Bonus
installment until the First Payment Date;

                    (iii) subject to Executive’s continued compliance with Section 11 of this Agreement, an amount
equal to the greater of (A) $15,000,000, and (B) an amount equal to the sum of (I) three times the
Base Salary (at the rate in effect immediately prior to termination) and (II) three times the
actual Annual Bonus paid with respect to the preceding fiscal year (any such amount shall be
referred to in this Agreement as the “Severance”); provided that, for purposes of this
sentence, an Annual Bonus shall be deemed to be “paid” at the time that Executive receives an
amount in respect thereof at the time that Annual Bonuses are paid to other

 

 

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senior executives of the Company. The Severance shall be payable in equal installments (each,
a “Severance Installment”) over the twelve (12) month period (eighteen (18) month period in
the event of a termination by Executive for Good Reason based on the circumstances described in
clause (iv) or clause (v) under the definition of Good Reason in this Section 9(c)) commencing with
the second of the 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,
Executive shall not receive any installment payment until the First Payment Date, and, on the First
Payment Date, the Company will pay Executive 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;

                    (iv) continued health and life insurance benefits for Executive and his spouse and dependents,
if any, for a thirty six (36) month period following the date of Executive’s termination of
employment, on the same basis as such benefits are provided from time to time to actively employed
senior executives of the Company; provided, that the Company’s obligation to provide such health
and life insurance benefits shall cease with respect to such benefits at the time Executive becomes
eligible for such benefits from another employer;

                    (v) three years of additional service credit and credit for three years of additional age
under the Company’s employee pension plans, except for under any plan that is qualified or intended
to be qualified under the provisions of Section 401 of the Code, for purposes of benefit accrual,
matching contributions, vesting and eligibility for retirement. For the avoidance of doubt, no
amounts provided in Section 9(c)(ii) or (iii) of this Agreement shall be included in such
calculation, and Executive shall not be entitled to receive any payments pursuant to any
non-qualified pension plan of the Company until expiration of the thirty six (36) month period
following the Executive’s termination of employment under this Section 9(c); and

                    (vi) if, as of the date of such termination, (a) Executive is not eligible to participate in
any retiree medical or life insurance program of the Company and (b) Executive would have at least
10 years of service with the Company and reached at least age 55 if credited with three years of
additional age and service, then the Company shall purchase for Executive a medical and/or life
insurance policy, as applicable, that provides coverage that is as comparable as is commercially
available to the coverage under the retiree medical and/or retiree life insurance program of the
Company, as applicable, as in effect as of the date of Executive’s termination of employment. For
the avoidance of doubt, nothing in this Section 9(c)(vi) shall provide Executive with any extra age
or service credit for purposes of eligibility or for any other purpose under any retiree medical or
life insurance program of the Company.

          Notwithstanding anything to the contrary in this Agreement, no further payments or benefits
shall be due under this Section 9(c) if, at any time after Executive’s employment is terminated
pursuant to this Section 9(c) and prior to the time when any payment is made or benefit provided
pursuant to this Section 9(c), the Board determines, in accordance with the procedures set forth in
Section 9(a) of this Agreement, that grounds existed, on or prior to the date of termination of
Executive’s employment with the Company, including prior to the Effective Date, for the Company to
terminate Executive’s employment for Cause; provided, however, that, Executive shall in all events
be entitled to receive his Base Salary through the date

 

 

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of termination and reimbursement for any unreimbursed business expenses properly incurred by
Executive in accordance with Company policy through the date of Executive’s termination.

          Executive shall have no rights to any further compensation (including any Base Salary, Annual
Bonus, payments under Section 3(b) of this Agreement or any long-term or equity-based compensation
awards) or any other benefits under this Agreement. All other benefits, if any, due Executive
following a termination pursuant to this Section 9(c) shall be determined in accordance with the
plans, policies and practices of the Company; provided, however, that Executive shall not
participate in any severance plan, policy or program of the Company. Executive and the Company
acknowledge that any payments and benefits provided to Executive under clauses (ii) through (vi) of
this Section 9(c) relate solely to services rendered by Executive to the Company on and after the
Effective Date.

For purposes of this Agreement, “Good Reason” means:

                    (i) any change in the duties or responsibilities (including reporting responsibilities) of
Executive that is inconsistent in any material and adverse respect with Executive’s current
position(s), duties, responsibilities or status with the Company (including any material and
adverse diminution of such duties or responsibilities); provided, however, that Good Reason shall
not be deemed to occur pursuant to this clause (i) solely on account of the Company no longer being
a publicly traded entity or on account of any change to Executive’s duties as a result of his
physical or mental incapacity;

                    (ii) a material and adverse change in Executive’s titles or offices (including his position as
President and Chief Executive Officer) with the Company; provided, however, that Good Reason shall
not be deemed to occur pursuant to this clause (ii) on account of any change to Executive’s titles
or offices as a result of his physical or mental incapacity;

                    (iii) any material breach of this Agreement by the Company;

                    (iv) the failure of the Compensation Committee to adopt, by December 31, 2005 (or such later
date mutually agreed by Executive and the Compensation Committee), an incentive compensation
program in respect of each of the 2006 and 2007 fiscal years setting forth target awards that are,
in the aggregate, no less than $12,875,000 and, as and if appropriate to the award type,
performance metrics and payout schedules for earning target, above-target, or below-target award
amounts;

                    (v) within 30 days following notice by the Compensation Committee to Executive of adoption of
an incentive compensation program in respect of each of the 2006 and 2007 fiscal years, Executive’s
written notification to the Compensation Committee that such program is not acceptable to
Executive;

                    (vi) any failure of the shareholders to re-elect Executive as a member of the Board or any
failure of the Board to re-nominate Executive for election to the Board;

 

 

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                    (vii) any failure of the Board to consult with Executive prior to appointing a Chairman of the
Board to replace the member of the Board holding such position on the Effective Date; or

                    (viii) the relocation of Executive’s primary office to a location that is more than thirty
five (35) miles from both of (A) the Company’s headquarters in New York, New York, unless such
office is moved closer to Executive’s primary residence at the time of such relocation, and (B)
Executive’s residence at the time of such relocation;

provided that, a termination by Executive with Good Reason shall be effective only if, within
thirty (30) days following Executive’s first becoming aware of the circumstances giving rise to
Good Reason, Executive delivers a Notice of Termination for Good Reason by Executive to the
Company, and the Company within thirty (30) days following its receipt of such notification has
failed to cure the circumstances giving rise to Good Reason.

               (d) Termination by Executive without Good Reason. The Employment Term, and
Executive’s employment hereunder, may be terminated by Executive without Good Reason following the
delivery of a Notice of Termination to the Company. Upon a termination by Executive pursuant to
this Section 9(d), Executive shall be entitled to his Base Salary through the date of such
termination and reimbursement for any unreimbursed business expenses properly incurred by Executive
in accordance with Company policy through the date of Executive’s termination, and he shall have no
rights to any further compensation (including any Base Salary, Transition Bonus, Annual Bonus,
payments under Section 3(b) of this Agreement or any long-term or equity-based compensation awards)
or any other benefits under this Agreement. All other benefits, if any, due Executive following
termination pursuant to this Section 9(d) shall be determined in accordance with the plans,
policies and practices of the Company; provided, however, that Executive shall not participate in
any severance plan, policy or program of the Company.

               (e) Release. Notwithstanding any other provision of this Agreement to the contrary,
Executive acknowledges and agrees that any and all payments and benefits to which Executive is
entitled under Section 9(b) or Section 9(c) of this Agreement are conditional upon and subject to
Executive’s execution of a general release and waiver, substantially in the form attached as
Exhibit A hereto, of all claims Executive may have against the Company and its directors, officers
and affiliates, except as to matters covered by provisions of this Agreement that expressly survive
the termination of this Agreement.

               (f) Notice of Termination. Any purported termination of employment by the Company or
Executive, other than any termination due to Executive’s death, shall be communicated by a written
Notice of Termination to Executive or the Company, respectively, delivered in accordance with
Section 15(i) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean
a notice which shall indicate the specific termination provision in the Agreement relied upon, the
date of termination, and shall set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of employment under the provision so indicated. The date of
termination of Executive’s employment shall be the date so stated in the Notice of Termination,
which date, in the event of a termination by Executive pursuant to

 

 

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Section 9(d), shall be no less than sixty (60) days following the delivery of a Notice of
Termination; provided, however, that in the case of a termination for Cause by the Company, the
date of termination shall be the date the Notice of Termination is delivered in accordance with
Section 15(i).

               (g) Continuation of Employment; Termination On or After Expiration of Employment Term.
Unless the parties otherwise agree in writing, continuation of Executive’s employment with the
Company beyond the expiration of the Employment Term shall be deemed an employment at will and
shall not be deemed to extend any of the provisions of this Agreement, and Executive’s employment
may thereafter be terminated at will by Executive or the Company. The expiration of the Employment
Term on the date immediately preceding the third anniversary of the Effective Date shall not be
cause for the payment of severance or post-employment benefits pursuant to this Agreement if
Executive is not otherwise terminated pursuant to Section 9 of this Agreement prior to such date.

          10. Certain Additional Payments by the Company.

               (a) If it is determined (as hereafter provided) that any payment or distribution by the
Company to or for the benefit of 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 of the Company, including without limitation any
restricted stock, stock option, 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 (or any
successor provision thereto), or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the “Excise Tax”), then the
Executive will be entitled to receive an additional payment or payments (a “Gross-Up
Payment”) in an amount such that, after payment by 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, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

               (b) Subject to the provisions of Section 10(f) of this Agreement, all determinations required
to be made under this Section 10, including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, will be made by a nationally recognized firm of certified public accountants (the
“Accounting Firm”) chosen by the Company. The Company will direct the Accounting Firm to
submit its determination and detailed supporting calculations to both the Company and Executive
within fifteen (15) calendar days after the date of the event giving rise to the Payment or the
date of Executive’s termination of employment, if applicable, and any other such time or times as
may be requested by the Company or Executive. If the Accounting Firm determines that any Excise
Tax is payable by Executive, the Company will pay the required Gross-Up Payment to Executive within
five (5) business days after receipt of such determination and calculations. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it will, at the same time as it makes
such determination, furnish Executive

 

 

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with an opinion that he has substantial authority not to report any Excise Tax on his federal,
state, local income or other tax return. Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment will be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) 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 10(f) hereof and Executive thereafter
is required to make a payment of any Excise Tax, Executive will 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 Executive as promptly as possible. Any
such Underpayment will be promptly paid by the Company to, or for the benefit of, Executive within
five (5) business days after receipt of such determination and calculations.

               (c) The Company and Executive will each provide the Accounting Firm access to and copies of
any books, records and documents in the possession of the Company or 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 determination contemplated by Section 10(b) of
this Agreement.

               (d) The federal, state and local income or other tax returns filed by Executive will be
prepared and filed on a consistent basis with the determination of the Accounting Firm with respect
to the Excise Tax payable by Executive. Executive will 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
(the “IRS”) 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 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, Executive will, within five (5) business days pay
to the Company the amount of such reduction.

               (e) The fees and expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Section 10(b) and Section 10(d) of this Agreement
will be borne by the Company and paid as incurred. If such fees and expenses are initially
advanced by Executive, the Company will reimburse Executive the full amount of such fees and
expenses within five (5) business days after receipt from Executive of a statement therefor and
reasonable evidence of his payment thereof.

               (f) Executive will notify the Company in writing of any claim by the IRS that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such notification will be given as
promptly as practicable but no later than ten (10) business days after Executive actually receives
notice of such claim and Executive will 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
Executive). Executive will not pay such claim prior to the

 

 

12

earlier of (x) the expiration of the thirty (30) calendar-day period following the date on
which he gives such notice to the Company and (y) the date that any payment of amount with respect
to such claim is due. If the Company notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive will:

                    (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 will 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 will bear and pay directly all costs and expenses
(including interest and penalties) incurred in connection with such contest and will indemnify and
hold harmless Executive, on an after-tax basis, for and against any Excise Tax or income 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
10(f), the Company will control all proceedings taken in connection with the contest of any claim
contemplated by this Section 10(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 that Executive may participate therein at his own cost and expense) and
may, at its option, either direct Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and 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 will determine; provided, that if the Company directs
Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such
payment to Executive on an interest-free basis and will indemnify and hold Executive harmless, on
an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of 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 will be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and Executive will be entitled to
settle or contest, as the case may be, any other issue raised by the IRS or any other taxing
authority.

               (g) If, after the receipt by Executive of an amount advanced by the Company pursuant to
Section 10(f) hereof, Executive receives any refund with respect to such claim, Executive will
(subject to the Company’s complying with the requirements of

 

 

13

Section 10(f) hereof) 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
Executive of an amount advanced by the Company pursuant to Section 10(f) hereof, a determination is
made that Executive will not be entitled to any refund with respect to such claim and the Company
does not notify 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 will be
forgiven and will not be required to be repaid and the amount of such advance will offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid pursuant to this Section 10.

               (h) If it is ultimately determined (by IRS private letter ruling or closing agreement, court
decision or otherwise) that any Gross-Up Payments and/or advances and/or Underpayments and/or any
other amounts paid or made by the Company pursuant to this Section 10 were not necessary to
accomplish the purpose of this Section 10, the Executive shall promptly cooperate with the Company
to correct such overpayments (by way of assigning any refund to the Company as provided herein, by
direct repayment or otherwise) in a manner consistent with the purpose of this Section 10, which is
to protect the Executive by making him whole, but not more than whole, on an after-tax basis, from
the application of the Excise Tax.

          11. Restrictive Covenants.

               (a) Non-Competition/Non-Solicitation. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its subsidiaries and controlled affiliates
and accordingly agrees as follows:

                    (i) While employed by the Company and for a period of twelve (12) months (eighteen (18) months
in the event of a termination by Executive for Good Reason based on the circumstances described in
clause (iv) or clause (v) under the definition of Good Reason in Section 9(c) of this Agreement)
following the date Executive ceases to be employed by the Company, if such termination occurs
during the Employment Term (the “Restricted Period”), Executive will not directly or
indirectly, (w) engage in any “Competitive Business” (defined below) for Executive’s own
account, (x) enter the employ of, or render any services to, any person engaged in any Competitive
Business, (y) acquire a financial interest in, or otherwise become actively involved with, any
person engaged in any Competitive Business, directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, trustee or consultant, or (z) interfere with
business relationships (whether formed before or after the Effective Date) between the Company and
customers or suppliers of, or consultants to, the Company.

                    (ii) For purposes of this Section 11, a “Competitive Business” means, as of any date,
including during the Restricted Period, any person or entity (including any joint venture,
partnership, firm, corporation or limited liability company) that engages in or proposes to engage
in the following activities in any geographical area in which the Company does business: (A) the
property and casualty insurance business, including commercial insurance, business insurance,
personal insurance and specialty insurance; (B) the life and accident and health insurance
business; (C) the underwriting, reinsurance, marketing or sale of

 

 

14

(but not brokerage of) (y) any form of insurance of any kind that the Company as of such date
does, or proposes to, underwrite, reinsure, market or sell (any such form of insurance, a
“Company Insurance Product”), or (z) any other form of insurance that is marketed or sold
in competition with any Company Insurance Product; (D) retirement services and mutual funds
services; or (E) any other business that as of such date is a direct and material competitor of one
of the Company’s principal businesses.

                    (iii) For purposes of this Section 11, the Company shall be construed to include the Company
and its subsidiaries and controlled affiliates.

                    (iv) Notwithstanding anything to the contrary in the Agreement, Executive may (A) directly or
indirectly, own, solely as an investment, securities of any person engaged in the business of the
Company which are publicly traded on a national or regional stock exchange or on the
over-the-counter market if Executive (x) is not a controlling person of, or a member of a group
which controls, such person and (y) does not, directly or indirectly, own one percent (1%) or more
of any class of securities of such person, and (B) during the portion of the Restricted Period
following termination of Executive’s employment, be employed by or provide services to, any private
equity firm or hedge fund, so long as Executive has no participation whatsoever in any fund
invested in any business described in clauses (A) through (C) of Section 11(a)(ii) of this
Agreement.

                    (v) During the Restricted Period, Executive will not, directly or indirectly, without the
Company’s written consent, solicit or encourage to cease to work with the Company any person who
holds a position that is designated as a “senior partner” or “partner” for purposes of eligibility
to participate in any deferred compensation profit participation program of the Company (or any
similar designation in any successor or substitute plan or program (each, a “DCPPP Senior
Partner or Partner”), any employee holding the title of Vice President or higher of the Company
or any business unit of the Company, or any employee designated by the Company as a “core employee”
or a similar designation (a “Key Employee”) or any consultant whose primary business
activity consists of providing services to the Company (“Key Consultant”) or who was a Key
Employee of or Key Consultant then under contract with the Company within the six (6) month period
preceding such activity. In addition, during the Restricted Period, Executive will not, without
the Company’s written consent, directly or indirectly hire any person who is or who was, within the
six (6) month period preceding such activity, a DCPPP Senior Partner or Partner.

                    (vi) Executive understands that the provisions of this Section 11(a) may limit his ability to
earn a livelihood in a business similar to the business of the Company but he nevertheless agrees
and hereby acknowledges that (A) such provisions do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company, (B) such provisions
contain reasonable limitations as to time and scope of activity to be restrained, (C) such
provisions are not harmful to the general public and (D) such provisions are not unduly burdensome
to Executive. In consideration of the foregoing and in light of Executive’s education, skills and
abilities, Executive agrees that he shall not assert that, and it should not be considered that,
any provisions of Section 11(a) otherwise are void, voidable or unenforceable or should be voided
or held unenforceable.

 

 

15

                    (vii) It is expressly understood and agreed that, although Executive and the Company consider
the restrictions contained in this Section 11(a) to be reasonable, if a judicial determination is
made by a court of competent jurisdiction that the time or territory or any other restriction
contained in this Section 11(a) or elsewhere in this Agreement is an unenforceable restriction
against Executive, the provisions of the Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court of competent
jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.

          (b) Nondisparagement. Executive agrees (whether during or after Executive’s
employment with the Company) not to issue, circulate, publish or utter any false or disparaging
statements, remarks or rumors about the Company or the officers, directors or managers of the
Company other than to the extent reasonably necessary in order to (i) assert a bona fide claim
against the Company arising out of Executive’s employment with the Company, or (ii) respond in a
truthful and appropriate manner to any legal process or give truthful and appropriate testimony in
a legal or regulatory proceeding. The Company agrees to instruct its directors and executives not
to (whether during or after Executive’s employment with the Company) issue, circulate, publish or
utter any false or disparaging statements, remarks or rumors about Executive other than to the
extent reasonably necessary in order to (i) assert a bona fide claim against Executive arising out
of Executive’s employment with the Company, or (ii) respond in a truthful and appropriate manner to
any legal process or give truthful and appropriate testimony in a legal or regulatory proceeding.

          (c) Code of Conduct. Executive agrees to abide by the terms of the Company’s Code of
Conduct or The Director, Executive Officer and Senior Financial Officer Code of Business Conduct
and Ethics.

          (d) Confidentiality/Company Property. Executive shall not, without the prior written
consent of the Company, use, divulge, disclose or make accessible to any other person, firm,
partnership, corporation or other entity, any “Confidential Information” (as defined below) except
while employed by the Company, in furtherance of the business of and for the benefit of the
Company, or any “Personal Information” (as defined below); provided that Executive may disclose
such information when required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company and/or its affiliates, as the
case may be, or by any administrative body or legislative body (including a committee thereof) with
jurisdiction to order Executive to divulge, disclose or make accessible such information; provided,
further, that in the event that Executive is ordered by a court or other government agency to
disclose any Confidential Information or Personal Information, Executive shall (i) promptly notify
the Company of such order, (ii) at the written request of the Company, diligently contest such
order at the sole expense of the Company as expenses occur, and (iii) at the written request of the
Company, seek to obtain, at the sole expense of the Company, such confidential treatment as may be
available under applicable laws for any information disclosed under such order. For purposes of
this Section 11(d),

 

 

16

(i) “Confidential Information” shall mean non-public information concerning the
financial data, strategic business plans, product development (or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and confidential information
relating to the business of the Company or its affiliates or customers, that, in any case, is not
otherwise available to the public (other than by Executive’s breach of the terms hereof) and (ii)
“Personal Information” shall mean any information concerning the personal, social or
business activities of the officers or directors of the Company. Upon termination of Executive’s
employment with the Company, Executive shall return all Company property, including, without
limitation, files, records, disks and any media containing Confidential Information or Personal
Information.

               (e) Developments. All discoveries, inventions, ideas, technology, formulas, designs,
software, programs, algorithms, products, systems, applications, processes, procedures, methods and
improvements and enhancements conceived, developed or otherwise made or created or produced by
Executive alone or with others, and in any way relating to the business or any proposed business of
the Company of which Executive has been made aware, or the products or services of the Company of
which Executive has been made aware, whether or not subject to patent, copyright or other
protection and whether or not reduced to tangible form, at any time during the Employment Term
(“Developments”), shall be the sole and exclusive property of the Company. Executive
agrees to, and hereby does, assign to the Company, without any further consideration, all of
Executive’s right, title and interest throughout the world in and to all Developments. Executive
agrees that all such Developments that are copyrightable may constitute works made for hire under
the copyright laws of the United States and, as such, acknowledges that the Company is the author
of such Developments and owns all of the rights comprised in the copyright of such Developments and
Executive hereby assigns to the Company without any further consideration all of the rights
comprised in the copyright and other proprietary rights Executive may have in any such Development
to the extent that it might not be considered a work made for hire. Executive shall make and
maintain adequate and current written records of all Developments and shall disclose all
Developments promptly, fully and in writing to the Company promptly after development of the same,
and at any time upon request.

               (f) Cooperation. During the Employment Term and at any time thereafter, Executive
agrees to cooperate (i) with the Company in the defense of any legal matter involving any matter
that arose during Executive’s employment with the Company and (ii) with all government authorities
on matters pertaining to any investigation, litigation or administrative proceeding pertaining to
the Company. The Company will reimburse Executive for any reasonable travel and out of pocket
expenses incurred by Executive in providing such cooperation. The Company agrees to cooperate with
the Executive in the same manner as described above.

          12. Enforcement. Executive acknowledges and agrees that the Company’s remedies at law
for a breach or threatened breach of any of the provisions of Sections 11(a), (b), (d) and (e) of
this Agreement would be inadequate and, in recognition of this fact, Executive agrees that, in the
event of such a breach or threatened breach, in addition to any remedies at law, the Company,
without posting any bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available. In addition, the Company shall be entitled

 

 

17

to immediately cease paying any amounts remaining due or providing any benefits to Executive
pursuant to Section 9 of this Agreement upon a determination by the Board that Executive has
violated any provision of Section 11 (a), (b), (d), (e) or (f) of this Agreement, subject to
payment of all such amounts upon a final determination, in accordance with the dispute resolution
mechanism contained in Section 15 of this Agreement, that Executive had not violated Section 11
(a), (b), (d), (e) or (f) of this Agreement.

          13. Indemnification. At all times during and after the Employment Term, the Company
shall indemnify Executive to the fullest extent permitted by the law of the state of the Company’s
incorporation for all actions or omissions taken or made by Executive (whether before or after the
date of this Agreement) in his service to the Company or its affiliated entities for which
Executive has performed or does perform services at the request of the Company, including, to the
fullest extent allowed by law, the advancement to Executive of all reasonable attorneys’ costs and
expenses incurred by Executive in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or was a director,
officer or employee of the Company, within twenty (20) calendar days after receipt by the Company
of a written request from Executive for such advance. Executive’s request for advancement of
attorneys’ costs and expenses pursuant to the preceding sentence shall include an undertaking by
Executive to repay the amount of such advance if it shall ultimately be determined pursuant to
Section 15(b) of the Agreement that Executive is not entitled to be indemnified against such costs
and expenses. Executive shall have the benefit of continuing directors’ and officers’ insurance
coverage at levels no less favorable than those in effect from time to time for members of the
Board and other members of the Company’s senior management.

          14. Executive Representation and Warranty. Executive hereby represents and warrants
that, as of the date of this Agreement, during Executive’s period of employment with the Company,
Executive has not willfully or grossly negligently breached Executive’s duties as an employee,
officer or director of the Company, has not committed fraud, embezzlement or any other similar
dishonest conduct in the course of his employment and has not willfully violated any material
provision of the Company’s Code of Conduct or the Director, Executive Officer and Senior Financial
Officer Code of Business Conduct and Ethics. As used in this Section 14, the term “willfully”
shall be subject to the same limitations as the term “willful” in Section 9(a) of this Agreement.

          15. Miscellaneous.

               (a) No Mitigation or Offset. In the event of any termination of Executive’s
employment hereunder, Executive shall be under no obligation to seek other employment or otherwise
mitigate the obligations of the Company under this Agreement, and there shall be no offset against
any amounts due under this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain.

               (b) Arbitration. Except as provided in Section 11 of this Agreement, any dispute
between the parties to this Agreement in connection with, arising out of or asserting breach of
this Agreement or any statutory or common law claim by Executive relating to

 

 

18

Executive’s employment under this Agreement or rights under this Agreement (including any tort
or discrimination claim), shall be exclusively resolved by binding statutory arbitration. Such
dispute shall be submitted to arbitration in New York, New York, before a panel of three neutral
arbitrators in accordance with the Commercial Rules of the American Arbitration Association then in
effect, and the arbitration determination resulting from any such submission shall be final and
binding upon the parties hereto. Judgment upon any arbitration award may be entered in any court
of competent jurisdiction.

               (c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED
WITHIN THAT STATE, WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS OR THE CONFLICT OF LAWS
PROVISIONS OF ANY OTHER JURISDICTION WHICH WOULD CAUSE THE APPLICATION OF ANY LAW OTHER THAN THAT
OF THE STATE OF NEW YORK.

               (d) Entire Agreement/Amendments. This Agreement contains the entire understanding of
the parties with respect to the employment of Executive by the Company, and, without limiting the
effect of the foregoing, specifically supersedes the Employment Letter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein. This Agreement may not be
altered, modified or amended except by written instrument signed by the parties hereto. Sections
3, 5, 9, 10, 11, 12, 13 and 15 of this Agreement shall survive the termination of Executive’s
employment with the Company, to the extent specifically stated therein.

               (e) No Waiver. The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive
such party of the right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.

               (f) Severability. In the event that any one or more of the provisions of this
Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement shall not be affected
thereby.

               (g) Successors.

                    (i) This Agreement is personal to Executive and shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by Executive’s legal representatives. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors.

                    (ii) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the

 

 

19

business and/or assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to perform it if no
such succession had taken place, unless such assumption occurs by operation of law. As used in
this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

               (h) Dispute Resolution Costs; Legal Fees. In the event of any contest or dispute
relating to this Agreement or the termination of Executive’s employment hereunder, the Company
shall reimburse 100% of Executive’s reasonable legal fees if Executive substantially prevails in
such contest or dispute. The costs of any arbitration pursuant to Section 15(b) (including the
fees and cost of the arbitrators) shall be paid by the Company.

               (i) Notice. For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have been duly given if
delivered personally, if delivered by overnight courier service, if sent by facsimile transmission
or if mailed by United States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses or sent via facsimile to the respective facsimile numbers, as the case
may be, as set forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon receipt; provided, however, that (i) notices sent by personal delivery or overnight
courier shall be deemed given when delivered; (ii) notices sent by facsimile transmission shall be
deemed given upon the sender’s receipt of confirmation of complete transmission, and (iii) notices
sent by United States registered mail shall be deemed given two days after the date of deposit in
the United States mail.

If to Executive, to the address as shall most currently appear on the records of the Company

With a copy to:

          Wachtell, Lipton, Rosen & Katz

          51 West 52nd Street

          New York, NY 10019

          Attn: Adam Chinn, Esq.

          Fax: 212-403-2000

If to the Company, to:

          American International Group, Inc.

          70 Pine Street

          New York, NY 10270

          Fax: 212-770-1584

          Attn: General Counsel

 

 

20

With a copy to:

          Paul, Weiss, Rifkind, Wharton & Garrison LLP

          1285 Avenue of the Americas

          New York, New York 10019-6064

          Attn: Michael J. Segal, Esq.

          Fax: 212-757-3990

               (j) Withholding Taxes. The Company may withhold from any amounts payable under this
Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

               (k) Counterparts. This Agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument.

          IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.

	 	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 
	 	 	/s/ Martin J. Sullivan
	 	 	 
	 	 	Martin J. Sullivan
	 
	 	 	 	 
	 	 	AMERICAN INTERNATIONAL GROUP, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Kathleen E. Shannon
	 

	 	 	 	 
	 	 	Name: Kathleen E. Shannon
	 	 	Title: Senior Vice President, Secretary and Deputy
	 	 	General Counsel

 

 

EXHIBIT A

RELEASE OF CLAIMS

1. Release of Claims

          In partial consideration of the payments and benefits described in Section 9 of the employment
agreement (the “Employment Agreement”), effective March 14, 2005, by and between Martin J.
Sullivan (“Executive”) and American International Group, Inc. (the “Company”), to
which Executive agrees Executive is not entitled until and unless he executes this Release,
Executive, for and on behalf of himself and his heirs and assigns, subject to the following two
sentences hereof, hereby waives and releases any employment, compensation or benefit-related common
law, statutory or other complaints, claims, charges or causes of action of any kind whatsoever,
both known and unknown, in law or in equity, which Executive ever had, now has or may have against
the Company and its shareholders (other than C.V. Starr & Co., Inc. and Starr International
Company, Inc.), subsidiaries, successors, assigns, directors, officers, partners, members,
employees or agents (collectively, the “Releasees”) by reason of facts or omissions which
have occurred on or prior to the date that Executive signs this Release, including, without
limitation, any complaint, charge or cause of action arising under federal, state or local laws
pertaining to employment, including the Age Discrimination in Employment Act of 1967
(“ADEA,” a law which prohibits discrimination on the basis of age), the National Labor
Relations Act, the Civil Rights Act of 1991, the Americans With Disabilities Act of 1990, Title VII
of the Civil Rights Act of 1964, all as amended; and all other federal, state and local laws and
regulations. By signing this Release, Executive acknowledges that he intends to waive and release
any rights known or unknown that he may have against the Releasees under these and any other laws;
provided, that Executive does not waive or release claims with respect to the right to enforce the
Employment Agreement (the “Unreleased Claims”). Notwithstanding the foregoing, Executive
does not release, discharge or waive any rights to indemnification that he may have under the
certificate of incorporation, the by-laws or equivalent governing documents of the Company or its
subsidiaries or affiliates, the laws of the State of Delaware or any other state of which such
subsidiary or affiliate is a domiciliary, or any indemnification agreement between Executive and
the Company, or any rights to insurance coverage under any directors’ and officers’ personal
liability insurance or fiduciary insurance policy.

2. Proceedings

          Executive acknowledges that he has not filed any complaint, charge, claim or proceeding,
except with respect to an Unreleased Claim, if any, against any of the Releasees before any local,
state or federal agency, court or other body (each individually a
“Proceeding”). Executive
represents that he is not aware of any basis on which such a Proceeding could reasonably be
instituted. Executive (i) acknowledges that he will not initiate or cause to be initiated on his
behalf any Proceeding and will not participate in any Proceeding, in each case, except as required
by law; and (ii) waives any right he may have to benefit in any manner from any relief (whether
monetary or otherwise) arising out of any Proceeding, including any Proceeding conducted by the
Equal Employment Opportunity Commission (“EEOC”). Further, Executive understands that, by
executing

 

 

2

this Release, he will be limiting the availability of certain remedies that he may have
against the Company and limiting also his ability to pursue certain claims against the Releasees.
Notwithstanding the above, nothing in Section 1 of this Release shall prevent Executive from (i)
initiating or causing to be initiated on his behalf any complaint, charge, claim or proceeding
against the Company before any local, state or federal agency, court or other body challenging the
validity of the waiver of his claims under the ADEA contained in Section 1 of this Release (but no
other portion of such waiver); or (ii) initiating or participating in an investigation or
proceeding conducted by the EEOC.

3. Time to Consider

          Executive acknowledges that he has been advised that he has twenty-one (21) days from the date
of receipt of this Release to consider all the provisions of this Release and he does hereby
knowingly and voluntarily waive said given twenty-one (21) day period. EXECUTIVE FURTHER
ACKNOWLEDGES THAT HE HAS READ THIS RELEASE CAREFULLY, HAS BEEN ADVISED BY THE COMPANY TO, AND HAS
IN FACT, CONSULTED AN ATTORNEY, AND FULLY UNDERSTANDS THAT BY SIGNING BELOW HE IS GIVING UP CERTAIN
RIGHTS WHICH HE MAY HAVE TO SUE OR ASSERT A CLAIM AGAINST ANY OF THE RELEASEES, AS DESCRIBED IN
SECTION 1 OF THIS RELEASE AND THE OTHER PROVISIONS HEREOF. EXECUTIVE ACKNOWLEDGES THAT HE HAS NOT
BEEN FORCED OR PRESSURED IN ANY MANNER WHATSOEVER TO SIGN THIS RELEASE, AND EXECUTIVE AGREES TO ALL
OF ITS TERMS VOLUNTARILY.

4. Revocation

          Executive hereby acknowledges and understands that Executive shall have seven (7) days from
the date of his execution of this Release to revoke this Release (including, without limitation,
any and all claims arising under the ADEA) and that neither the Company nor any other person is
obligated to provide any benefits to Executive pursuant to Section 9 of the Employment Agreement
until eight (8) days have passed since Executive’s signing of this Release without Executive having
revoked this Release, in which event the Company immediately shall arrange and/or pay for any such
benefits otherwise attributable to said eight- (8) day period, consistent with the terms of the
Employment Agreement. If Executive revokes this Release, Executive will be deemed not to have
accepted the terms of this Release, and no action will be required of the Company under any section
of this Release.

5. No Admission

          This Release does not constitute an admission of liability or wrongdoing of any kind by
Executive or the Company.

 

 

3

6. General Provisions

          A failure of any of the Releasees to insist on strict compliance with any provision of this
Release shall not be deemed a waiver of such provision or any other provision hereof. If any
provision of this Release is determined to be so broad as to be unenforceable, such provision shall
be interpreted to be only so broad as is enforceable, and in the event that any provision is
determined to be entirely unenforceable, such provision shall be deemed severable, such that all
other provisions of this Release shall remain valid and binding upon Executive and the Releasees.

7. Governing Law

          The validity, interpretations, construction and performance of this Release shall be governed
by the laws of the State of New York without giving effect to conflict of laws principles.

          IN WITNESS WHEREOF, Executive has hereunto set Executive’s hand as of the day and year set
forth opposite his signature below.

	 	 	 
	                                                            

	 	                                                            
	DATE

	 	Martin J. SullivanEX-10.2:

 

Ex. 10(2)

EMPLOYMENT AGREEMENT

          EMPLOYMENT AGREEMENT (this “Agreement”), is entered into as of June 27, 2005, by and
between American International Group, Inc., a Delaware corporation (the “Company”), and
Donald P. Kanak (“Executive”).

          WHEREAS, Executive is currently employed by the Company as its Executive Vice Chairman and
Chief Operating Officer pursuant to that certain employment letter dated as of March 16, 2005 (the
“Employment Letter”); and

          WHEREAS, as of the date of this Agreement, the Company wishes to continue Executive’s
employment as Executive Vice Chairman and Chief Operating Officer under the terms of a new
employment agreement on the terms set forth herein, which shall supersede the Employment Letter;
and

          WHEREAS, Executive desires to enter into such agreement; and

          WHEREAS, Executive’s employment as the Company’s Executive Vice Chairman and Chief Operating
Officer is a promotion from his position with the Company prior to March 14, 2005, and the Board of
Directors of the Company (the “Board”) has acknowledged that Executive has been performing
his duties as Executive Vice Chairman and Chief Operating Officer under conditions at the Company
that are demanding both in terms of the time commitment required and the unique circumstances
facing the Company as of the date of this Agreement.

          NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other
good and valuable consideration, the parties hereby agree as follows:

          1. Term of Employment. Subject to the provisions of Section 9 of this Agreement, this
Agreement shall be effective for a term commencing as of March 14, 2005 (the “Effective
Date”) and ending on the day immediately preceding the third anniversary of the Effective Date
(the “Employment Term”).

          2. Position.

               (a) Executive shall serve as Executive Vice Chairman and Chief Operating Officer of the
Company. In such position, Executive shall have such duties and authority as are consistent
therewith. Executive shall report to the Company’s Chief Executive Officer.

               (b) During the Employment Term, Executive will devote his full business time and best efforts
to the performance of his duties hereunder and will not engage in any other business, profession or
occupation for compensation or otherwise which would conflict or interfere with the rendition of
such services, either directly or indirectly, without the prior written consent of the Board;
provided, that nothing herein shall preclude Executive, subject to the prior approval of the Board,
from accepting appointment to or continuing to serve on any

 

 

 2

board of directors or trustees of any business corporation or any charitable or not-for-profit
organization or from managing his personal, financial and legal affairs; provided, in each case,
and in the aggregate, that such activities do not conflict or interfere with the performance of
Executive’s duties hereunder or conflict with Section 11 of this Agreement in any material respect.

          3. Base Salary and Non-Variable Compensation.

               (a) Base Salary. During the Employment Term, the Company shall pay Executive a base
salary (the “Base Salary”) at the annual rate of $800,000, payable in regular installments
in accordance with the Company’s usual payroll practices. The Base Salary shall be retroactive to
the Effective Date. During the Employment Term, the Compensation Committee of the Board (the
“Compensation Committee”) shall review the Base Salary annually and may increase the Base
Salary, and the term “Base Salary” shall refer to such increased amount.

               (b) Non-Variable Compensation. Executive shall receive an additional cash payment
with respect to each of fiscal years 2005, 2006 and 2007, in addition to any other amounts
described in this Agreement, in an amount equal to the excess, if any, of (i) $1,000,000 over (ii)
the aggregate of all (A) supplemental quarterly interim cash bonuses in respect of the Company’s
long-term compensation arrangements or otherwise paid in respect of the applicable fiscal year,
which shall be paid consistent with past practice, (B) payments, if any, during the applicable
fiscal year for service as a director of C.V. Starr & Co., Inc. (“Starr”) and Starr
International Company, Inc. and (C) cash dividends received in respect of the fiscal year, or with
respect to the prior fiscal year to the extent not previously taken into account in respect of this
clause (C), on common and preferred stock of Starr held by Executive, which compensation shall be
paid no later than March 31 of the fiscal year following each of fiscal years 2005, 2006 and 2007.
This amount shall be payable in respect of fiscal year 2007 irrespective of the expiration of the
Employment Term on the day immediately preceding the third anniversary of the Effective Date, if
such amount has not been paid by such time.

          4. Bonuses.

               (a) Transition Bonus. The Company shall pay Executive a transition bonus, in cash, in
an amount equal to $1,100,000 (the “Transition Bonus”), which shall be paid in four equal
installments on, or as soon as reasonably practicable following, each of the following dates,
whether or not Executive is employed by the Company on such dates, unless Executive’s employment
has been terminated by the Company for “Cause” or by Executive without “Good Reason” (as such terms
are defined below): (i) the date Executive and the Company sign this Agreement, and (ii) the last
day of each of the second, third and fourth fiscal quarters of the Company in 2005. If Executive’s
employment is terminated for any reason other than by the Company for Cause or by Executive without
Good Reason before any payment date set forth in the preceding sentence, then, if necessary to
avoid the application of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), to any such unpaid portion of the Transition Bonus, Executive shall not receive
any such amounts 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, the Company will pay Executive an

 

 

 3

amount equal to the sum of all amounts that would have been payable following termination of
employment in respect of the period preceding the First Payment Date but for the delay imposed on
account of the aforementioned Section 409A.

               (b) Annual Bonus. Executive may receive an additional annual cash bonus in respect of
each full or partial fiscal year of the Company during the Employment Term, as determined in the
sole discretion of the Compensation Committee based on its assessment of Company and individual
performance in relation to performance targets, a subjective evaluation of Executive’s performance
and/or such other criteria as may be established by it (the “Annual Bonus”).
Notwithstanding the foregoing, during the Employment Term, Executive shall be eligible, with
respect to each of fiscal years 2006 and 2007, for an annual cash bonus based on the attainment of
targets established by the Compensation Committee, which, together with the target value of any
long-term or equity-based award in respect of such year (as described in Section 5), shall have a
total target value of $6,700,000.

          5. Long-Term and Equity-Based Incentives. During the Employment Term, Executive shall
be eligible to participate in any long-term incentive compensation plans or equity-based
compensation plans maintained by the Company on such basis as may be determined by the Compensation
Committee; provided that, as of a date that is not later than March 31, 2006, Executive shall be
granted awards in respect of fiscal year 2005 having a value, determined at the date of grant, as
reasonably determined by the Compensation Committee, of no less than the excess of (A) $5,600,000
over (B) the sum of (i) the grant date value (as reasonably determined by the Compensation
Committee in the same manner) of Company stock options and other equity awards granted to Executive
no later than December 31, 2005, in respect of fiscal year 2005, (ii) the annualized fiscal year
2005 grant value (as reasonably determined by the Compensation Committee) of any award made to
Executive pursuant to a Company arrangement intended to be in lieu of Executive’s participation in
the Starr International Company, Inc. Deferred Compensation Profit Participation Plan and (iii) the
value (as reasonably determined by the Compensation Committee) of any additional shares of
preferred stock awarded to Executive with respect to fiscal year 2005 by Starr and any growth in
book value in respect of 2005 attributable to any common stock of Starr held by Executive. In the
event that any shares pursuant to clause (iii) of the preceding sentence have not been awarded, or
increase in book value determined, by Starr by March 31, 2006, the Company shall grant Executive a
long-term or equity-based award having a value, as reasonably determined by the Compensation
Committee, equal to the excess of (X) $5,600,000 over (Y) the value of the awards described in
clauses (i) and (ii) of the preceding sentence. Notwithstanding anything to the contrary in this
Section 5, during the Employment Term, Executive shall be eligible, with respect to each of fiscal
years 2006 and 2007, for a long-term or equity-based award, which, together with any annual cash
bonus target in respect of such year (as described in Section 4(b)), shall have a total target
value (as reasonably determined by the Compensation Committee) of $6,700,000. The amount actually
awarded in respect of 2006 and 2007 shall be offset by the value of (I) awards described in clause
(B) of the first sentence of this Section 5, but substituting 2006 or 2007, as applicable, for 2005
in such clause and (II) any shares awarded, or increase in book value determined, in accordance
with such clause (B) in respect of the applicable year but later than March 31 of the subsequent
year.

 

 

 4

          6. Employee Benefits. During the Employment Term, Executive shall be entitled to
participate in the Company’s employee benefit plans (other than any severance or change-in-control
plan) as in effect from time to time on the same basis as those benefits are generally made
available to other senior executives of the Company.

          7. Vacation. Executive shall be entitled to four (4) weeks annual paid vacation in
accordance with the vacation policy of the Company.

          8. Business Expenses and Perquisites.

               (a) Expenses.

                    (i) During the Employment Term, reasonable business expenses incurred by Executive in the
performance of his duties hereunder shall be reimbursed by the Company in accordance with Company
policies.

                    (ii) In addition, the Company will make Executive whole (on a grossed-up basis) for the excess
of (x) any Japanese tax liability imposed on Executive on his income from the Company due to his
being reassigned to the Far East in 2005, in respect of his employment with the Company prior to
January 1, 2004, over (y) the hypothetical federal income tax liability to which Executive would
have been subject on such income had Executive been resident in the United States in accordance
with the Company’s MOP Policy, as agreed with Executive during Executive’s assignment; provided
that Executive shall appeal the assessment of any such tax in any manner reasonably requested by
the Company, with the cost of any such appeal being borne by the Company. The provisions of this
Section 8(a)(ii) shall survive the termination of this Agreement.

               (b) Perquisites. During the Employment Term, Executive shall be entitled to
participate in all of the Company’s perquisite plans, programs and arrangements that are generally
provided by the Company to other senior executives from time to time, including, without
limitation, the provision of financial and tax planning assistance.

          9. Termination. Notwithstanding any other provision of the Agreement:

               (a) For Cause by the Company. The Employment Term, and Executive’s employment
hereunder, may be terminated at any time by the Company for Cause upon delivery of a “Notice of
Termination” (as defined in Section 9(f)) by the Company to Executive. For purposes of this
Agreement, “Cause” shall mean, whether occurring prior to, or on or after the Effective
Date, (i) Executive’s willful and continued failure to perform substantially his duties with the
Company (other than any such failure resulting from Executive’s incapacity due to physical or
mental illness) for a period of 10 days after a written demand for substantial performance is
delivered to Executive by the Board, which specifically identifies the manner in which the Board
believes that Executive has not substantially performed Executive’s duties, (ii) Executive’s
willful malfeasance or willful misconduct that results in substantial damage to the Company, (iii)
Executive’s willful and material violation of a material provision of the Company’s Code of Conduct
or the Director, Executive Officer and Senior Financial

 

 

 5

Officer Code of Business Conduct and Ethics, as such codes of conduct may be in effect from
time to time, or other policies regarding behavior of employees, (iv) conviction of, or entry of a
plea of guilty or no contest by Executive with respect to, a felony or any lesser crime of which
fraud or dishonesty is a material element, (v) any willful failure by Executive to comply with a
material provision of Section 11 of this Agreement, or (vi) Executive’s breach of Section 14 of
this Agreement.

               For purposes of this provision, no act or failure to act on the part of Executive, shall be
considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without
reasonable belief that Executive’s action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Board or the Chief Executive Officer of the Company or based
upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by Executive in good faith and in the best interests of the Company. The cessation of
employment of Executive shall not be deemed to be for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a simple
majority of the members of the Board (other than Executive, if he is a member of the Board) at a
meeting of the Board called and held for such purpose (after reasonable notice is provided to
Executive, and Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive is guilty of the conduct
described in clauses (i), (ii), (iii), (v) or (vi) above, and specifying the particulars thereof in
detail; provided, that, no such resolution shall be required for any termination for Cause due to
the conduct described in clause (iv) above.

               If Executive is terminated for Cause pursuant to this Section 9(a), he shall be entitled to
receive only his Base Salary through the date of termination and reimbursement for any unreimbursed
business expenses properly incurred by Executive in accordance with Company policy through the date
of Executive’s termination, and he shall have no further rights to any compensation (including any
Base Salary, Transition Bonus, Annual Bonus (including any Annual Bonus that has been declared but
not yet paid), payments from the Company pursuant to Section 3(b) of this Agreement or any
long-term or equity-based compensation awards) or any other benefits under this Agreement. All
other benefits, if any, due Executive following Executive’s termination of employment for Cause
pursuant to this Section 9(a) shall be determined in accordance with the plans, policies and
practices of the Company; provided, however, that Executive shall not participate in any severance
plan, policy or program of the Company.

               (b) Disability or Death. The Employment Term, and Executive’s employment hereunder,
shall terminate immediately upon Executive’s death or following delivery of a Notice of Termination
by the Company to Executive if Executive becomes physically or mentally incapacitated and is
therefore unable for a period of ninety (90) consecutive days or one-hundred twenty (120) days
during any consecutive six (6) month period to perform his duties with substantially the same level
of quality as immediately prior to such incapacity (such incapacity is hereinafter referred to as
“Disability”). Upon termination of Executive’s employment hereunder for either Disability
or death, Executive or Executive’s estate (as the case may be) shall be entitled to receive (i) his
Base Salary through the last day of the

 

 

 6

payroll period during which such termination occurs; (ii) any declared but unpaid Annual Bonus
for any fiscal year preceding the year in which the termination occurs; (iii) reimbursement for any
unreimbursed business expenses properly incurred by Executive in accordance with Company policy
through the date of Executive’s termination (the sum of (i), (ii) plus (iii), the “Accrued
Obligations”); (iv) a pro rata portion of any Annual Bonus that Executive would have been
entitled to receive pursuant to Section 4(b) of this Agreement with respect to the fiscal year of
termination based upon the percentage of the fiscal year that shall have elapsed through the date
of Executive’s termination of employment, and determined by using (X) the Transition Bonus, if such
termination occurs during fiscal year 2005, and reducing the pro rata portion of the Transition
Bonus by the aggregate amount of all installments of the Transition Bonus that have been paid
through the date of termination, or (Y) Executive’s target Annual Bonus for the fiscal year of such
termination, if such termination occurs following the end of fiscal year 2005 (the “Pro-Rata
Bonus”), payable as soon as reasonably practicable following the date of Executive’s
termination of employment, and (v) in the case of a termination due to Disability, continuation of
the Base Salary in effect on the date of termination until the earlier of (A) the second
anniversary of the date of termination, and (B) the date Executive is eligible to commence
receiving payments under the Company’s long-term disability policy. Notwithstanding the foregoing,
in the event of Executive’s termination of employment due to Disability, if necessary to avoid the
application of Section 409A of the Code to the amounts payable pursuant to clauses (iv) and (v) of
the preceding sentence, Executive shall not receive any such amounts until the First Payment Date
and, on the First Payment Date, the Company will pay Executive an amount equal to the sum of all
amounts 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. Executive or Executive’s
estate (as the case may be) shall have no further rights to any compensation (including any Base
Salary, Annual Bonus, payments under Section 3(b) of this Agreement or any long-term or
equity-based compensation awards) or any other benefits under this Agreement. All other benefits,
if any, due Executive following Executive’s termination for Disability or death shall be determined
in accordance with the plans, policies and practices of the Company; provided, however, that
Executive (or his estate, as the case may be) shall not participate in any severance plan, policy
or program of the Company.

               (c) Without Cause by the Company or for Good Reason by Executive. The Employment Term,
and Executive’s employment hereunder, may be terminated by the Company without Cause (other than by
reason of Executive’s Disability) following the delivery by the Company of a Notice of Termination
to Executive or by Executive for Good Reason following the delivery by Executive of a Notice of
Termination to the Company. The expiration of the Employment Term on the date immediately
preceding the third anniversary of the Effective Date shall not be considered a termination without
Cause under this Agreement or otherwise result in the payment of severance or post-employment
benefits pursuant to Section 9(c) of this Agreement if Executive is not otherwise terminated
pursuant to Section 9(c) of this Agreement prior to such date. If Executive’s employment is
terminated by the Company without Cause (other than by reason of Disability) or by Executive for
Good Reason, Executive shall be entitled to receive:

                    (i) within five (5) business days following termination, a lump sum payment in an amount equal
to the Accrued Obligations;

 

 

 7

                    (ii) the Pro-Rata Bonus, payable as soon as reasonably practicable following the date of
Executive’s termination of employment; provided, that, if necessary to avoid the application of
Section 409A of the Code to the Pro Rata Bonus, Executive shall not receive any such Pro Rata Bonus
installment until the First Payment Date;

                    (iii) subject to Executive’s continued compliance with Section 11 of this Agreement, an amount
equal to the greater of (A) $10,000,000, and (B) an amount equal to the sum of (I) three times the
Base Salary (at the rate in effect immediately prior to termination) and (II) three times the
actual Annual Bonus paid with respect to the preceding fiscal year (any such amount shall be
referred to in this Agreement as the “Severance”); provided that, for purposes of this
sentence, an Annual Bonus shall be deemed to be “paid” at the time that Executive receives an
amount in respect thereof at the time that Annual Bonuses are paid to other senior executives of
the Company. The Severance shall be payable in equal installments (each, a “Severance
Installment”) over the twelve (12) month period (eighteen (18) month period in the event of a
termination by Executive for Good Reason based on the circumstances described in clause (iv) or
clause (v) under the definition of Good Reason in this Section 9(c)) commencing with the second of
the 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, Executive shall
not receive any installment payment until the First Payment Date, and, on the First Payment Date,
the Company will pay Executive 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;

                    (iv) continued health and life insurance benefits for Executive and his spouse and dependents,
if any, for a thirty six (36) month period following the date of Executive’s termination of
employment, on the same basis as such benefits are provided from time to time to actively employed
senior executives of the Company; provided, that the Company’s obligation to provide such health
and life insurance benefits shall cease with respect to such benefits at the time Executive becomes
eligible for such benefits from another employer;

                    (v) three years of additional service credit and credit for three years of additional age
under the Company’s employee pension plans, except for under any plan that is qualified or intended
to be qualified under the provisions of Section 401 of the Code, for purposes of benefit accrual,
matching contributions, vesting and eligibility for retirement. For the avoidance of doubt, no
amounts provided in Section 9(c)(ii) or (iii) of this Agreement shall be included in such
calculation, and Executive shall not be entitled to receive any payments pursuant to any
non-qualified pension plan of the Company until expiration of the thirty six (36) month period
following the Executive’s termination of employment under this Section 9(c); and

                    (vi) if, as of the date of such termination, (a) Executive is not eligible to participate in
any retiree medical or life insurance program of the Company and (b) Executive would have at least
10 years of service with the Company and reached at least age 55 if credited with three years of
additional age and service, then the Company shall purchase for Executive a medical and/or life
insurance policy, as applicable, that provides coverage that is as comparable as is commercially
available to the coverage under the retiree medical and/or retiree life insurance program of the
Company, as applicable, as in effect as of the date of Executive’s

 

 

 8

termination of employment. For the avoidance of doubt, nothing in this Section 9(c)(vi) shall
provide Executive with any extra age or service credit for purposes of eligibility or for any other
purpose under any retiree medical or life insurance program of the Company.

          Notwithstanding anything to the contrary in this Agreement, no further payments or benefits
shall be due under this Section 9(c) if, at any time after Executive’s employment is terminated
pursuant to this Section 9(c) and prior to the time when any payment is made or benefit provided
pursuant to this Section 9(c), the Board determines, in accordance with the procedures set forth in
Section 9(a) of this Agreement, that grounds existed, on or prior to the date of termination of
Executive’s employment with the Company, including prior to the Effective Date, for the Company to
terminate Executive’s employment for Cause; provided, however, that, Executive shall in all events
be entitled to receive his Base Salary through the date of termination and reimbursement for any
unreimbursed business expenses properly incurred by Executive in accordance with Company policy
through the date of Executive’s termination.

          Executive shall have no rights to any further compensation (including any Base Salary, Annual
Bonus, payments under Section 3(b) of this Agreement or any long-term or equity-based compensation
awards) or any other benefits under this Agreement. All other benefits, if any, due Executive
following a termination pursuant to this Section 9(c) shall be determined in accordance with the
plans, policies and practices of the Company; provided, however, that Executive shall not
participate in any severance plan, policy or program of the Company. Executive and the Company
acknowledge that any payments and benefits provided to Executive under clauses (ii) through (vi) of
this Section 9(c) relate solely to services rendered by Executive to the Company on and after the
Effective Date.

For purposes of this Agreement, “Good Reason” means:

                    (i) any change in the duties or responsibilities (including reporting responsibilities) of
Executive that is inconsistent in any material and adverse respect with Executive’s current
position(s), duties, responsibilities or status with the Company (including any material and
adverse diminution of such duties or responsibilities); provided, however, that Good Reason shall
not be deemed to occur pursuant to this clause (i) solely on account of the Company no longer being
a publicly traded entity or on account of any change to Executive’s duties as a result of his
physical or mental incapacity;

                    (ii) a material and adverse change in Executive’s titles or offices (including his position as
Executive Vice Chairman and Chief Operating Officer with the Company; provided, however, that Good
Reason shall not be deemed to occur pursuant to this clause (ii) on account of any change to
Executive’s titles or offices as a result of his physical or mental incapacity;

                    (iii) any material breach of this Agreement by the Company;

                    (iv) the failure of the Compensation Committee to adopt, by December 31, 2005 (or such later
date mutually agreed by Executive and the Compensation Committee), an incentive compensation
program in respect of each of the 2006 and 2007 fiscal

 

 

 9

years setting forth target awards that are, in the aggregate, no less than $6,700,000 and, as
and if appropriate to the award type, performance metrics and payout schedules for earning target,
above-target, or below-target award amounts;

                    (v) within 30 days following notice by the Compensation Committee to Executive of adoption of
an incentive compensation program in respect of each of the 2006 and 2007 fiscal years, Executive’s
written notification to the Compensation Committee that such program is not acceptable to
Executive; or

                    (vi) the relocation of Executive’s primary office to a location that is more than thirty five
(35) miles from (A) the Company’s offices in Tokyo, Japan or in Hong Kong, as the same shall exist
from time to time, unless such office is moved closer to Executive’s primary residence at the time
of such relocation, and (B) Executive’s primary residence at the time of such relocation;

provided that, a termination by Executive with Good Reason shall be effective only if, within
thirty (30) days following Executive’s first becoming aware of the circumstances giving rise to
Good Reason, Executive delivers a Notice of Termination for Good Reason by Executive to the
Company, and the Company within thirty (30) days following its receipt of such notification has
failed to cure the circumstances giving rise to Good Reason.

               (d) Termination by Executive without Good Reason. The Employment Term, and
Executive’s employment hereunder, may be terminated by Executive without Good Reason following the
delivery of a Notice of Termination to the Company. Upon a termination by Executive pursuant to
this Section 9(d), Executive shall be entitled to his Base Salary through the date of such
termination and reimbursement for any unreimbursed business expenses properly incurred by Executive
in accordance with Company policy through the date of Executive’s termination, and he shall have no
rights to any further compensation (including any Base Salary, Transition Bonus, Annual Bonus,
payments under Section 3(b) of this Agreement or any long-term or equity-based compensation awards)
or any other benefits under this Agreement. All other benefits, if any, due Executive following
termination pursuant to this Section 9(d) shall be determined in accordance with the plans,
policies and practices of the Company; provided, however, that Executive shall not participate in
any severance plan, policy or program of the Company.

               (e) Release. Notwithstanding any other provision of this Agreement to the contrary,
Executive acknowledges and agrees that any and all payments and benefits to which Executive is
entitled under Section 9(b) or Section 9(c) of this Agreement are conditional upon and subject to
Executive’s execution of a general release and waiver, substantially in the form attached as
Exhibit A hereto, of all claims Executive may have against the Company and its directors, officers
and affiliates, except as to matters covered by provisions of this Agreement that expressly survive
the termination of this Agreement.

               (f) Notice of Termination. Any purported termination of employment by the Company or
Executive, other than any termination due to Executive’s death, shall be communicated by a written
Notice of Termination to Executive or the Company, respectively,

 

 

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delivered in accordance with Section 15(i) hereof. For purposes of this Agreement, a
“Notice of Termination” shall mean a notice which shall indicate the specific termination
provision in the Agreement relied upon, the date of termination, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of employment under
the provision so indicated. The date of termination of Executive’s employment shall be the date so
stated in the Notice of Termination, which date, in the event of a termination by Executive
pursuant to Section 9(d), shall be no less than sixty (60) days following the delivery of a Notice
of Termination; provided, however, that in the case of a termination for Cause by the Company, the
date of termination shall be the date the Notice of Termination is delivered in accordance with
Section 15(i).

               (g) Continuation of Employment; Termination On or After Expiration of Employment Term.
Unless the parties otherwise agree in writing, continuation of Executive’s employment with the
Company beyond the expiration of the Employment Term shall be deemed an employment at will and
shall not be deemed to extend any of the provisions of this Agreement, and Executive’s employment
may thereafter be terminated at will by Executive or the Company. The expiration of the Employment
Term on the date immediately preceding the third anniversary of the Effective Date shall not be
cause for the payment of severance or post-employment benefits pursuant to this Agreement if
Executive is not otherwise terminated pursuant to Section 9 of this Agreement prior to such date.

          10. Certain Additional Payments by the Company.

               (a) If it is determined (as hereafter provided) that any payment or distribution by the
Company to or for the benefit of 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 of the Company, including without limitation any
restricted stock, stock option, 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 (or any
successor provision thereto), or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the “Excise Tax”), then the
Executive will be entitled to receive an additional payment or payments (a “Gross-Up
Payment”) in an amount such that, after payment by 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, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

               (b) Subject to the provisions of Section 10(f) of this Agreement, all determinations required
to be made under this Section 10, including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, will be made by a nationally recognized firm of certified public accountants (the
“Accounting Firm”) chosen by the Company. The Company will direct the Accounting Firm to
submit its determination and detailed supporting calculations to both the Company and Executive
within fifteen (15) calendar days after the date

 

 

 11

of the event giving rise to the Payment or the date of Executive’s termination of employment,
if applicable, and any other such time or times as may be requested by the Company or Executive.
If the Accounting Firm determines that any Excise Tax is payable by Executive, the Company will pay
the required Gross-Up Payment to Executive within five (5) business days after receipt of such
determination and calculations. If the Accounting Firm determines that no Excise Tax is payable by
Executive, it will, at the same time as it makes such determination, furnish Executive with an
opinion that he has substantial authority not to report any Excise Tax on his federal, state, local
income or other tax return. Any determination by the Accounting Firm as to the amount of the
Gross-Up Payment will be binding upon the Company and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code (or any successor provision thereto) 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 10(f) hereof and Executive thereafter is required
to make a payment of any Excise Tax, Executive will 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 Executive as promptly as possible. Any such
Underpayment will be promptly paid by the Company to, or for the benefit of, Executive within five
(5) business days after receipt of such determination and calculations.

               (c) The Company and Executive will each provide the Accounting Firm access to and copies of
any books, records and documents in the possession of the Company or 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 determination contemplated by Section 10(b) of
this Agreement.

               (d) The federal, state and local income or other tax returns filed by Executive will be
prepared and filed on a consistent basis with the determination of the Accounting Firm with respect
to the Excise Tax payable by Executive. Executive will 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
(the “IRS”) 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 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, Executive will, within five (5) business days pay
to the Company the amount of such reduction.

               (e) The fees and expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Section 10(b) and Section 10(d) of this Agreement
will be borne by the Company and paid as incurred. If such fees and expenses are initially
advanced by Executive, the Company will reimburse Executive the full amount of such fees and
expenses within five (5) business days after receipt from Executive of a statement therefor and
reasonable evidence of his payment thereof.

 

 

 12

               (f) Executive will notify the Company in writing of any claim by the IRS that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such notification will be given as
promptly as practicable but no later than ten (10) business days after Executive actually receives
notice of such claim and Executive will 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
Executive). Executive will not pay such claim prior to the earlier of (x) the expiration of the
thirty (30) calendar-day period following the date on which he gives such notice to the Company and
(y) the date that any payment of amount with respect to such claim is due. If the Company notifies
Executive in writing prior to the expiration of such period that it desires to contest such claim,
Executive will:

                    (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 will 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 will bear and pay directly all costs and expenses
(including interest and penalties) incurred in connection with such contest and will indemnify and
hold harmless Executive, on an after-tax basis, for and against any Excise Tax or income 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
10(f), the Company will control all proceedings taken in connection with the contest of any claim
contemplated by this Section 10(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 that Executive may participate therein at his own cost and expense) and
may, at its option, either direct Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and 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 will determine; provided, that if the Company directs
Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such
payment to Executive on an interest-free basis and will indemnify and hold Executive harmless, on
an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of 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 will be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and

 

 

 13

Executive will be entitled to settle or contest, as the case may be, any other issue raised by
the IRS or any other taxing authority.

               (g) If, after the receipt by Executive of an amount advanced by the Company pursuant to
Section 10 (f) hereof, Executive receives any refund with respect to such claim, Executive will
(subject to the Company’s complying with the requirements of Section 10(f) hereof) 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 Executive of an amount advanced by the
Company pursuant to Section 10(f) hereof, a determination is made that Executive will not be
entitled to any refund with respect to such claim and the Company does not notify 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 will be forgiven and will not be required
to be repaid and the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Section 10.

               (h) If it is ultimately determined (by IRS private letter ruling or closing agreement, court
decision or otherwise) that any Gross-Up Payments and/or advances and/or Underpayments and/or any
other amounts paid or made by the Company pursuant to this Section 10 were not necessary to
accomplish the purpose of this Section 10, the Executive shall promptly cooperate with the Company
to correct such overpayments (by way of assigning any refund to the Company as provided herein, by
direct repayment or otherwise) in a manner consistent with the purpose of this Section 10, which is
to protect the Executive by making him whole, but not more than whole, on an after-tax basis, from
the application of the Excise Tax.

          11. Restrictive Covenants.

               (a) Non-Competition/Non-Solicitation. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its subsidiaries and controlled affiliates
and accordingly agrees as follows:

                    (i) While employed by the Company and for a period of twelve (12) months (eighteen (18) months
in the event of a termination by Executive for Good Reason based on the circumstances described in
clause (iv) or clause (v) under the definition of Good Reason in Section 9(c) of this Agreement)
following the date Executive ceases to be employed by the Company, if such termination occurs
during the Employment Term (the “Restricted Period”), Executive will not directly or
indirectly, (w) engage in any “Competitive Business” (defined below) for Executive’s own
account, (x) enter the employ of, or render any services to, any person engaged in any Competitive
Business, (y) acquire a financial interest in, or otherwise become actively involved with, any
person engaged in any Competitive Business, directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, trustee or consultant, or (z) interfere with
business relationships (whether formed before or after the Effective Date) between the Company and
customers or suppliers of, or consultants to, the Company.

 

 

 14

                    (ii) For purposes of this Section 11, a “Competitive Business” means, as of any date,
including during the Restricted Period, any person or entity (including any joint venture,
partnership, firm, corporation or limited liability company) that engages in or proposes to engage
in the following activities in any geographical area in which the Company does business: (A) the
property and casualty insurance business, including commercial insurance, business insurance,
personal insurance and specialty insurance; (B) the life and accident and health insurance
business; (C) the underwriting, reinsurance, marketing or sale of (but not brokerage of) (y) any
form of insurance of any kind that the Company as of such date does, or proposes to, underwrite,
reinsure, market or sell (any such form of insurance, a “Company Insurance Product”), or
(z) any other form of insurance that is marketed or sold in competition with any Company Insurance
Product; (D) retirement services and mutual funds services; or (E) any other business that as of
such date is a direct and material competitor of one of the Company’s principal businesses.

                    (iii) For purposes of this Section 11, the Company shall be construed to include the Company
and its subsidiaries and controlled affiliates.

                    (iv) Notwithstanding anything to the contrary in the Agreement, Executive may (A) directly or
indirectly, own, solely as an investment, securities of any person engaged in the business of the
Company which are publicly traded on a national or regional stock exchange or on the
over-the-counter market if Executive (x) is not a controlling person of, or a member of a group
which controls, such person and (y) does not, directly or indirectly, own one percent (1%) or more
of any class of securities of such person, and (B) during the portion of the Restricted Period
following termination of Executive’s employment, be employed by or provide services to, any private
equity firm or hedge fund, so long as Executive has no participation whatsoever in any fund
invested in any business described in clauses (A) through (C) of Section 11(a)(ii) of this
Agreement.

                    (v) During the Restricted Period, Executive will not, directly or indirectly, without the
Company’s written consent, solicit or encourage to cease to work with the Company any person who
holds a position that is designated as a “senior partner” or “partner” for purposes of eligibility
to participate in any deferred compensation profit participation program of the Company (or any
similar designation in any successor or substitute plan or program (each, a “DCPPP Senior
Partner or Partner”), any employee holding the title of Vice President or higher of the Company
or any business unit of the Company, or any employee designated by the Company as a “core employee”
or a similar designation (a “Key Employee”) or any consultant whose primary business
activity consists of providing services to the Company (“Key Consultant”) or who was a Key
Employee of or Key Consultant then under contract with the Company within the six (6) month period
preceding such activity. In addition, during the Restricted Period, Executive will not, without
the Company’s written consent, directly or indirectly hire any person who is or who was, within the
six (6) month period preceding such activity, a DCPPP Senior Partner or Partner.

                    (vi) Executive understands that the provisions of this Section 11(a) may limit his ability to
earn a livelihood in a business similar to the business of the Company but he nevertheless agrees
and hereby acknowledges that (A) such provisions do not

 

 

 15

impose a greater restraint than is necessary to protect the goodwill or other business
interests of the Company, (B) such provisions contain reasonable limitations as to time and scope
of activity to be restrained, (C) such provisions are not harmful to the general public and (D)
such provisions are not unduly burdensome to Executive. In consideration of the foregoing and in
light of Executive’s education, skills and abilities, Executive agrees that he shall not assert
that, and it should not be considered that, any provisions of Section 11(a) otherwise are void,
voidable or unenforceable or should be voided or held unenforceable.

                    (vii) It is expressly understood and agreed that, although Executive and the Company consider
the restrictions contained in this Section 11(a) to be reasonable, if a judicial determination is
made by a court of competent jurisdiction that the time or territory or any other restriction
contained in this Section 11(a) or elsewhere in this Agreement is an unenforceable restriction
against Executive, the provisions of the Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court of competent
jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.

               (b) Nondisparagement. Executive agrees (whether during or after Executive’s
employment with the Company) not to issue, circulate, publish or utter any false or disparaging
statements, remarks or rumors about the Company or the officers, directors or managers of the
Company other than to the extent reasonably necessary in order to (i) assert a bona fide claim
against the Company arising out of Executive’s employment with the Company, or (ii) respond in a
truthful and appropriate manner to any legal process or give truthful and appropriate testimony in
a legal or regulatory proceeding. The Company agrees to instruct its directors and executives not
to (whether during or after Executive’s employment with the Company) issue, circulate, publish or
utter any false or disparaging statements, remarks or rumors about Executive other than to the
extent reasonably necessary in order to (i) assert or bona fide claim against Executive arising out
of Executive’s employment with the Company, or (ii) respond in a truthful and appropriate manner to
any legal process or give truthful and appropriate testimony in a legal or regulatory proceeding.

               (c) Code of Conduct. Executive agrees to abide by the terms of the Company’s Code of
Conduct or the Director, Executive Officer and Senior Financial Officer Code of Business Conduct
and Ethics.

               (d) Confidentiality/Company Property. Executive shall not, without the prior written
consent of the Company, use, divulge, disclose or make accessible to any other person, firm,
partnership, corporation or other entity, any “Confidential Information” (as defined below) except
while employed by the Company, in furtherance of the business of and for the benefit of the
Company, or any “Personal Information” (as defined below); provided that Executive may disclose
such information when required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company and/or its affiliates, as the
case may be, or by any administrative body or legislative

 

 

 16

body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose
or make accessible such information; provided, further, that in the event that Executive is ordered
by a court or other government agency to disclose any Confidential Information or Personal
Information, Executive shall (i) promptly notify the Company of such order, (ii) at the written
request of the Company, diligently contest such order at the sole expense of the Company as
expenses occur, and (iii) at the written request of the Company, seek to obtain, at the sole
expense of the Company, such confidential treatment as may be available under applicable laws for
any information disclosed under such order. For purposes of this Section 11(d), (i)
“Confidential Information” shall mean non-public information concerning the financial data,
strategic business plans, product development (or other proprietary product data), customer lists,
marketing plans and other non-public, proprietary and confidential information relating to the
business of the Company or its affiliates or customers, that, in any case, is not otherwise
available to the public (other than by Executive’s breach of the terms hereof) and (ii)
“Personal Information” shall mean any information concerning the personal, social or
business activities of the officers or directors of the Company. Upon termination of Executive’s
employment with the Company, Executive shall return all Company property, including, without
limitation, files, records, disks and any media containing Confidential Information or Personal
Information.

               (e) Developments. All discoveries, inventions, ideas, technology, formulas, designs,
software, programs, algorithms, products, systems, applications, processes, procedures, methods and
improvements and enhancements conceived, developed or otherwise made or created or produced by
Executive alone or with others, and in any way relating to the business or any proposed business of
the Company of which Executive has been made aware, or the products or services of the Company of
which Executive has been made aware, whether or not subject to patent, copyright or other
protection and whether or not reduced to tangible form, at any time during the Employment Term
(“Developments”), shall be the sole and exclusive property of the Company. Executive
agrees to, and hereby does, assign to the Company, without any further consideration, all of
Executive’s right, title and interest throughout the world in and to all Developments. Executive
agrees that all such Developments that are copyrightable may constitute works made for hire under
the copyright laws of the United States and, as such, acknowledges that the Company is the author
of such Developments and owns all of the rights comprised in the copyright of such Developments and
Executive hereby assigns to the Company without any further consideration all of the rights
comprised in the copyright and other proprietary rights Executive may have in any such Development
to the extent that it might not be considered a work made for hire. Executive shall make and
maintain adequate and current written records of all Developments and shall disclose all
Developments promptly, fully and in writing to the Company promptly after development of the same,
and at any time upon request.

               (f) Cooperation. During the Employment Term and at any time thereafter, Executive
agrees to cooperate (i) with the Company in the defense of any legal matter involving any matter
that arose during Executive’s employment with the Company and (ii) with all government authorities
on matters pertaining to any investigation, litigation or administrative proceeding pertaining to
the Company. The Company will reimburse Executive for any reasonable travel and out of pocket
expenses incurred by Executive in providing such cooperation. The Company agrees to cooperate with
the Executive in the same manner as described above.

 

 

 17

          12. Enforcement. Executive acknowledges and agrees that the Company’s remedies at law
for a breach or threatened breach of any of the provisions of Sections 11(a), (b), (d) and (e) of
this Agreement would be inadequate and, in recognition of this fact, Executive agrees that, in the
event of such a breach or threatened breach, in addition to any remedies at law, the Company,
without posting any bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available. In addition, the Company shall be entitled to immediately
cease paying any amounts remaining due or providing any benefits to Executive pursuant to Section 9
of this Agreement upon a determination by the Board that Executive has violated any provision of
Section 11 (a), (b), (d), (e) or (f) of this Agreement, subject to payment of all such amounts upon
a final determination, in accordance with the dispute resolution mechanism contained in Section 15
of this Agreement, that Executive had not violated Section 11 (a), (b), (d), (e) or (f) of this
Agreement.

          13. Indemnification. At all times during and after the Employment Term, the Company
shall indemnify Executive to the fullest extent permitted by the law of the state of the Company’s
incorporation for all actions or omissions taken or made by Executive (whether before or after the
date of this Agreement) in his service to the Company or its affiliated entities for which
Executive has performed or does perform services at the request of the Company, including, to the
fullest extent allowed by law, the advancement to Executive of all reasonable attorneys’ costs and
expenses incurred by Executive in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or was a director,
officer or employee of the Company, within twenty (20) calendar days after receipt by the Company
of a written request from Executive for such advance. Executive’s request for advancement of
attorneys’ costs and expenses pursuant to the preceding sentence shall include an undertaking by
Executive to repay the amount of such advance if it shall ultimately be determined pursuant to
Section 15(b) that Executive is not entitled to be indemnified against such costs and expenses.
Executive shall have the benefit of continuing directors’ and officers’ insurance coverage at
levels no less favorable than those in effect from time to time for members of the Board and other
members of the Company’s senior management.

          14. Executive Representation and Warranty. Executive hereby represents and warrants
that, as of the date of this Agreement, during Executive’s period of employment with the Company,
Executive has not willfully or grossly negligently breached Executive’s duties as an employee,
officer or director of the Company, has not committed fraud, embezzlement or any other similar
dishonest conduct in the course of his employment and has not willfully violated any material
provision of the Company’s Code of Conduct or the Director, Executive Officer and Senior Financial
Officer Code of Business Conduct and Ethics. As used in this Section 14, the term “willfully”
shall be subject to the same limitations as the term “willful” in Section 9(a) of this Agreement.

          15. Miscellaneous.

               (a) No Mitigation or Offset. In the event of any termination of Executive’s
employment hereunder, Executive shall be under no obligation to seek other employment or otherwise
mitigate the obligations of the Company under this Agreement, and

 

 

 18

there shall be no offset against any amounts due under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may obtain.

               (b) Arbitration. Except as provided in Section 11 of this Agreement, any dispute
between the parties to this Agreement in connection with, arising out of or asserting breach of
this Agreement or any statutory or common law claim by Executive relating to Executive’s employment
under this Agreement or rights under this Agreement (including any tort or discrimination claim),
shall be exclusively resolved by binding statutory arbitration. Such dispute shall be submitted to
arbitration in New York, New York, before a panel of three neutral arbitrators in accordance with
the Commercial Rules of the American Arbitration Association then in effect, and the arbitration
determination resulting from any such submission shall be final and binding upon the parties
hereto. Judgment upon any arbitration award may be entered in any court of competent jurisdiction.

               (c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED
WITHIN THAT STATE, WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS OR THE CONFLICT OF LAWS
PROVISIONS OF ANY OTHER JURISDICTION WHICH WOULD CAUSE THE APPLICATION OF ANY LAW OTHER THAN THAT
OF THE STATE OF NEW YORK.

               (d) Entire Agreement/Amendments. This Agreement contains the entire understanding of
the parties with respect to the employment of Executive by the Company, and, without limiting the
effect of the foregoing, specifically supersedes the Employment Letter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein. This Agreement may not be
altered, modified or amended except by written instrument signed by the parties hereto. Sections
3, 5, 8(a)(ii), 9, 10, 11, 12, 13 and 15 of this Agreement shall survive the termination of
Executive’s employment with the Company, to the extent specifically stated therein.

               (e) No Waiver. The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive
such party of the right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.

               (f) Severability. In the event that any one or more of the provisions of this
Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement shall not be affected
thereby.

               (g) Successors.

                    (i) This Agreement is personal to Executive and shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This

 

 

 19

Agreement shall inure to the benefit of and be enforceable by Executive’s legal
representatives. This Agreement shall inure to the benefit of and be binding upon the Company and
its successors.

                               (ii) The Company will require 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 to expressly assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place,
unless such assumption occurs by operation of law. As used in this Agreement, “Company”
shall mean the Company as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

                    (h) Dispute Resolution Costs; Legal Fees. In the event of any contest or dispute
relating to this Agreement or the termination of Executive’s employment hereunder, the Company
shall reimburse 100% of Executive’s reasonable legal fees if Executive substantially prevails in
such contest or dispute. The costs of any arbitration pursuant to Section 15(b) (including the
fees and cost of the arbitrators) shall be paid by the Company.

                    (i) Notice. For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have been duly given if
delivered personally, if delivered by overnight courier service, if sent by facsimile transmission
or if mailed by United States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses or sent via facsimile to the respective facsimile numbers, as the case
may be, as set forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon receipt; provided, however, that (i) notices sent by personal delivery or overnight
courier shall be deemed given when delivered; (ii) notices sent by facsimile transmission shall be
deemed given upon the sender’s receipt of confirmation of complete transmission, and (iii) notices
sent by United States registered mail shall be deemed given two days after the date of deposit in
the United States mail.

	 	 	 
	 

	 	If to Executive, to the address as
shall most currently appear on the records of the Company
	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	          Wachtell, Lipton, Rosen & Katz
	 

	 	          51 West 52nd Street
	 

	 	          New York, NY 10019
	 

	 	          Attn: Adam Chinn, Esq.
	 

	 	          Fax: 212-403-2000

 

 

 20

	 	 	 
	 

	 	If to the Company, to:
	 
	 	 
	 

	 	           American International Group, Inc.
	 

	 	           70 Pine Street
	 

	 	           New York, NY 10270
	 

	 	           Fax: 212-770-1584
	 

	 	           Attn: General Counsel
	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	          Paul, Weiss, Rifkind, Wharton & Garrison LLP
	 

	 	          1285 Avenue of the Americas
	 

	 	           New York, New York 10019-6064
	 

	 	           Attn: Michael J. Segal, Esq.
	 

	 	          Fax: 212-757-3990

               (j) Withholding Taxes. The Company may withhold from any amounts payable under this
Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

               (k) Counterparts. This Agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument.

 

 

 21

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.

	 	 	 	 	 
	 	EXECUTIVE

 	 
	 	/s/  Donald P. Kanak
 	 
	 	Donald P. Kanak 	 
	 	 	 
	 
	 	AMERICAN INTERNATIONAL GROUP, INC.

 	 
	 	By: 	/s/  Kathleen E. Shannon
 	 
	 	Name:  	Kathleen E. Shannon 	 
	 	Title:  	Senior Vice President, Secretary and Deputy

General Counsel 	 
	 

 

 

EXHIBIT A

RELEASE OF CLAIMS

	1.	 	Release of Claims

               In partial consideration of the payments and benefits described in Section 9 of the employment
agreement (the “Employment Agreement”), effective March 14, 2005, by and between Donald P.
Kanak (“Executive”) and American International Group, Inc. (the “Company”), to
which Executive agrees Executive is not entitled until and unless he executes this Release,
Executive, for and on behalf of himself and his heirs and assigns, subject to the following two
sentences hereof, hereby waives and releases any employment, compensation or benefit-related common
law, statutory or other complaints, claims, charges or causes of action of any kind whatsoever,
both known and unknown, in law or in equity, which Executive ever had, now has or may have against
the Company and its shareholders (other than C.V. Starr & Co., Inc. and Starr International
Company, Inc.), subsidiaries, successors, assigns, directors, officers, partners, members,
employees or agents (collectively, the “Releasees”) by reason of facts or omissions which
have occurred on or prior to the date that Executive signs this Release, including, without
limitation, any complaint, charge or cause of action arising under federal, state or local laws
pertaining to employment, including the Age Discrimination in Employment Act of 1967
(“ADEA,” a law which prohibits discrimination on the basis of age), the National Labor
Relations Act, the Civil Rights Act of 1991, the Americans With Disabilities Act of 1990, Title VII
of the Civil Rights Act of 1964, all as amended; and all other federal, state and local laws and
regulations. By signing this Release, Executive acknowledges that he intends to waive and release
any rights known or unknown that he may have against the Releasees under these and any other laws;
provided, that Executive does not waive or release claims with respect to the right to enforce the
Employment Agreement (the “Unreleased Claims”). Notwithstanding the foregoing, Executive
does not release, discharge or waive any rights to indemnification that he may have under the
certificate of incorporation, the by-laws or equivalent governing documents of the Company or its
subsidiaries or affiliates, the laws of the State of Delaware or any other state of which such
subsidiary or affiliate is a domiciliary, or any indemnification agreement between Executive and
the Company, or any rights to insurance coverage under any directors’ and officers’ personal
liability insurance or fiduciary insurance policy.

	2.	 	Proceedings

               Executive acknowledges that he has not filed any complaint, charge, claim or proceeding,
except with respect to an Unreleased Claim, if any, against any of the Releasees before any local,
state or federal agency, court or other body (each individually a “Proceeding”). Executive
represents that he is not aware of any basis on which such a Proceeding could reasonably be
instituted. Executive (i) acknowledges that he will not initiate or cause to be initiated on his
behalf any Proceeding and will not participate in any Proceeding, in each case, except as required
by law; and (ii) waives any right he may have to benefit in any manner from any relief (whether
monetary or otherwise) arising out of any Proceeding, including any Proceeding conducted by the
Equal Employment Opportunity Commission (“EEOC”). Further, Executive understands that, by
executing this Release, he will be limiting the availability of

 

 

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certain remedies that he may have against the Company and limiting also his ability to pursue
certain claims against the Releasees. Notwithstanding the above, nothing in Section 1 of this
Release shall prevent Executive from (i) initiating or causing to be initiated on his behalf any
complaint, charge, claim or proceeding against the Company before any local, state or federal
agency, court or other body challenging the validity of the waiver of his claims under the ADEA
contained in Section 1 of this Release (but no other portion of such waiver); or (ii) initiating or
participating in an investigation or proceeding conducted by the EEOC.

	3.	 	Time to Consider

               Executive acknowledges that he has been advised that he has twenty-one (21) days from the date
of receipt of this Release to consider all the provisions of this Release and he does hereby
knowingly and voluntarily waive said given twenty-one (21) day period. EXECUTIVE FURTHER
ACKNOWLEDGES THAT HE HAS READ THIS RELEASE CAREFULLY, HAS BEEN ADVISED BY THE COMPANY TO, AND HAS
IN FACT, CONSULTED AN ATTORNEY, AND FULLY UNDERSTANDS THAT BY SIGNING BELOW HE IS GIVING UP CERTAIN
RIGHTS WHICH HE MAY HAVE TO SUE OR ASSERT A CLAIM AGAINST ANY OF THE RELEASEES, AS DESCRIBED IN
SECTION 1 OF THIS RELEASE AND THE OTHER PROVISIONS HEREOF. EXECUTIVE ACKNOWLEDGES THAT HE HAS NOT
BEEN FORCED OR PRESSURED IN ANY MANNER WHATSOEVER TO SIGN THIS RELEASE, AND EXECUTIVE AGREES TO ALL
OF ITS TERMS VOLUNTARILY.

	4.	 	Revocation

               Executive hereby acknowledges and understands that Executive shall have seven (7) days from
the date of his execution of this Release to revoke this Release (including, without limitation,
any and all claims arising under the ADEA) and that neither the Company nor any other person is
obligated to provide any benefits to Executive pursuant to Section 9 of the Employment Agreement
until eight (8) days have passed since Executive’s signing of this Release without Executive having
revoked this Release, in which event the Company immediately shall arrange and/or pay for any such
benefits otherwise attributable to said eight- (8) day period, consistent with the terms of the
Employment Agreement. If Executive revokes this Release, Executive will be deemed not to have
accepted the terms of this Release, and no action will be required of the Company under any section
of this Release.

	5.	 	No Admission

               This Release does not constitute an admission of liability or wrongdoing of any kind by
Executive or the Company.

	6.	 	General Provisions

               A failure of any of the Releasees to insist on strict compliance with any provision of this
Release shall not be deemed a waiver of such provision or any other provision hereof. If any
provision of this Release is determined to be so broad as to be unenforceable, such provision

 

 

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shall be interpreted to be only so broad as is enforceable, and in the event that any
provision is determined to be entirely unenforceable, such provision shall be deemed severable,
such that all other provisions of this Release shall remain valid and binding upon Executive and
the Releasees.

	7.	 	Governing Law

               The validity, interpretations, construction and performance of this Release shall be governed
by the laws of the State of New York without giving effect to conflict of laws principles.

               IN WITNESS WHEREOF, Executive has hereunto set Executive’s hand as of the day and year set
forth opposite his signature below.

	 	 	 	 	 
	 
	 

DATE

	 	 

Donald P. Kanak

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