Document:

Exhibit 10.3

 

RETENTION AND SEVERANCE AGREEMENT

RETENTION
AND SEVERANCE AGREEMENT (this “Agreement”), dated as of May 14, 2007 by
and between 21st Century Insurance Group, a Delaware
corporation (the “Company”) and Michael T. Ray (the “Employee”).

WHEREAS,
Employee is a key employee of Company;

WHEREAS,
Company, American International Group, Inc., a Delaware corporation (“Parent”),
and AIG TW Corp., a Delaware corporation and wholly-owned indirect subsidiary
of Parent (“Merger Subsidiary”) have entered into an Agreement and Plan
of Merger, dated as of May 15, 2007 (the “Merger Agreement”) pursuant to
which the Merger Subsidiary will merge with and into the Company (the “Merger”);

WHEREAS,
pursuant to the consummation of the transactions contemplated by the Merger
Agreement, Employee is expected to dispose of Employee’s ownership interest in
the Company and receive an early payout of Employee’s interest in Company’s
Supplemental Executive Retirement Plan; and

WHEREAS,
Company desires to provide incentives for Employee to remain employed by
Company and its subsidiaries following the Closing Date of the Merger as
defined in the Merger Agreement (the “Closing Date”).

NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:

1.                                       Employee’s
Duties.  Employee shall perform his
duties with Company and its subsidiaries diligently and to the best of his
ability.  Employee shall use

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his best efforts
to assist Company in the integration of the businesses of Company and Parent
and the continued operation of the business of Company.  If, with the consent of Employee, the
employment of Employee is transferred to Parent, all references to “Company” in
this Agreement (other than in the recitals at the beginning thereof) shall be
understood to refer to “Parent” except where otherwise required by the context.

2.                                       Retention
Payment.  If Employee remains
employed by Company or its subsidiaries on the first anniversary of the Closing
Date, then Company shall pay to Employee in a lump sum within five (5) business
days thereafter, an amount equal to $437,500 
(the “Retention Payment”).

3.                                       Termination
Prior to Twelve Month Anniversary of Closing Date.

(a)                                  If
Company and its subsidiaries terminate the employment of Employee for Cause (as
defined herein) prior to the first anniversary of the Closing Date, or if
Employee terminates employment with Company and its subsidiaries prior to the
first anniversary of the Closing Date for any reason other than Good Reason (as
defined herein), Employee will not be eligible for any payment under this
Agreement.

(b)                                 If
Company and its subsidiaries terminate the employment of Employee without Cause
after the Closing Date and prior to the first anniversary of the Closing Date,
or if Employee terminates employment with Company and its subsidiaries prior to
the first anniversary of the Closing Date for Good Reason, then subject to
Employee’s continued compliance with Section 8 of this Agreement and provided
Employee does not make an Election (as defined below), Company shall:

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(A) pay to
Employee an amount equal to $875,000 (such amount, the “Severance”). The
Severance shall be payable in equal monthly installments (each, a “Severance
Installment”) over the twelve (12) month period commencing no earlier
than the second of Company’s standard payroll dates falling after such
termination; provided, however, that, if necessary to avoid the application of
Section 409A of the Code to the Severance, Employee shall not receive any
installment payment until the first scheduled payroll date that occurs more
than six months following the date of termination of employment (the “First
Payment Date”), and, on the First Payment Date, Company will pay Employee
an amount equal to the sum of all Severance Installments that would have been
payable in respect of the period preceding the First Payment Date but for the
delay imposed on account of the aforementioned Section 409A; and

(B) provide
continued health and life insurance benefits for Employee and his spouse and
dependents, if any, for a 24 month period following the date of Employee’s
termination of employment, on the same basis as such benefits were provided
during Employee’s employment with Company; provided, that  Company’s obligation to provide such health
and life insurance benefits shall cease with respect to such benefits at the
time Employee becomes eligible for such benefits from another employer.

(c)                                  For
purposes of this Agreement, “Cause” shall
mean, (i) the continued failure by Employee (other than any such failure
resulting from (A) the Employee’s incapacity due to physical or mental illness,
or (B) the Company’s obstruction of the performance of the Employee’s duties
and responsibilities) to perform substantially

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the duties and responsibilities of Employee’s
position with the Company after a written demand for substantial performance is
delivered to the Employee by the Board of Directors of Company (the “Board”),
which demand specifically identifies the manner in which the Board believes
that Employee has not substantially performed such duties or responsibilities
and suggests corrective action that is capable of being implemented within a
reasonable period; (ii) the conviction, or plea of guilty or nolo contendere,
of Employee by a court of competent jurisdiction for felony criminal
conduct;  (iii) Employee’s intentional
misconduct or gross negligence in connection with Employee’s duties, or an act
of fraud or material act of dishonesty by Employee, or (iv) Employee’s material
violation of a provision of Parent’s Code of Conduct, as such code of conduct
or its equivalent policies may be in effect from time to time.

(d)                                 For
purposes of this Agreement, “Good Reason” means: (i) a significant
adverse change in the nature or scope of Employee’s Company-related authority
or duties,  (ii) a significant reduction
in compensation or benefits provided by 
Company, or (iii) the geographical location where Employee is required
to perform principal duties is moved to a location more than fifty (50) miles
from such location existing at the date hereof;  provided
that, a termination by Employee with Good Reason shall be effective only if,
within sixty (60)  days following
Employee’s first becoming aware of the circumstances giving rise to Good
Reason, Employee delivers a notice of termination for Good Reason by Employee
to Company, and Company within thirty (30) days following its receipt of such
notification has failed to cure the circumstances giving rise to Good Reason. For
purposes of this paragraph 3(d), Employee acknowledges and

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agrees that Good Reason shall not be deemed
to occur (A) solely on account of Company no longer being a publicly traded
entity, (B) solely as a result of the Merger or (C) as a result of Employee
having to undertake reasonable business travel, including travel to Delaware to
implement the integration of Company with Parent.

4.                                       Termination
Between First Anniversary and Third Anniversary of Closing Date.   If Company and its subsidiaries terminate
the employment of Employee without Cause between the first anniversary of the
Closing Date and the third anniversary of the Closing Date, or if Employee
terminates employment with Company and its subsidiaries for Good Reason between
the first anniversary of the Closing Date and the third anniversary of the
Closing Date, then subject to Employee’s continued compliance with Section 8 of
this Agreement and provided Employee does not make an Election (as defined
below), Company shall:

(a)                                  pay
to Employee the amount of $437,500 (such total sum shall be referred to as the “Subsequent
Severance”).  The Subsequent
Severance shall be payable in equal monthly installments over the twelve
(12) month period commencing no earlier than the second of Company’s
standard payroll dates falling after such termination (the “Subsequent
Severance Installments”); provided, however, that, if necessary to avoid
the application of Section 409A of the Code to the Subsequent Severance,
Employee shall not receive any installment payment until the First Payment Date
and, on the First Payment Date,  Company
will pay Employee an amount equal to the sum of all Subsequent Severance
Installments that would have been payable in respect of the period preceding
the

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First Payment Date but for the delay imposed
on account of the aforementioned Section 409A; and

(b)                                 provide
continued health and life insurance benefits for Employee and his spouse and
dependents, if any, for a 24 month period following the date of Employee’s
termination of employment, on the same basis as such benefits were provided
during Employee’s employment with Company; provided, that Company’s obligation
to provide such health and life insurance benefits shall cease with respect to
such benefits at the time Employee becomes eligible for such benefits from
another employer.

5.                                       Release.  Notwithstanding any other provision of this
Agreement to the contrary, Employee acknowledges and agrees that any and all
payments and benefits to which Employee is entitled under Sections 3 and 4 of
this Agreement are conditioned on and subject to Employee’s execution of a
general release and waiver, substantially in the form attached as Exhibit A
hereto.

6.                                       Effect
on Severance Benefits.  This
Agreement contains the entire understanding of the parties with respect to the
subject matter of this Agreement and, without limiting the effect of the
foregoing, specifically supersedes any individual Retention Agreement,
employment agreement (including, but not limited to, any individual hire
agreement), severance agreement and Company’s Executive Severance Plan. Notwithstanding
the foregoing, nothing in this Agreement shall affect Employee’s entitlements
pursuant to the Company’s Supplemental Executive Retirement Plan

7.                                       No
Alienation.  Employee shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
the benefits provided under this

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Agreement,
and such benefits shall not be assignable in anticipation of payment whether by
voluntary or involuntary acts, or by operation of law, other than the law of
descent and distribution.

8.                                       Non-Competition;
Non-Solicitation.  Employee
acknowledges and recognizes the highly competitive nature of the businesses of
Company, Parent and their subsidiaries and accordingly agrees as follows:

(a)                                  While
employed by Company and for a period of twelve (12) months following the date
Employee ceases to be employed by Company (the “Restricted Period”),
Employee will not directly or indirectly, on behalf of any person or entity
other than Company, (u) engage in any “Competitive Business” (defined below),
(v) enter the employ of, or render any services to, any person engaged in any
Competitive Business with respect to such business, (w) 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, (x)
interfere with business relationships (whether formed before or after the Closing
Date) between  Company and customers or
suppliers of, or consultants to, Company, (y) solicit, contact, communicate or
attempt to communicate with, regarding products or services offered or proposed
to be offered by Company, any customer or client or prospective customer or
prospective client of Company (for purposes of this Section 8, “customer or
client” shall not include insurance brokers) or (z) regardless of who initiates
the communication, solicit, participate in the solicitation or recruitment of,
or in any manner encourage or provide assistance to, any employee, consultant
or agent of Company (or who

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was an employee of Company within the prior
12 months) to terminate his or her employment or other relationship with
Company or to leave its employ or other relationship with  Company for any engagement in any capacity or
for any other person or entity; provided, however, that Employee may elect to
waive receipt of the Severance and Subsequent Severance (the “Election”),
in which case Sections 8(a)(u), 8(a)(v) and 8(a)(w) will not apply to the
Employee; and provided, further, that Sections 8(a)(u), 8(a)(v) and 8(a)(w)
shall not apply to Employee if (i) Employee’s employment is terminated by
Company for Cause pursuant to Section 3(c)(i) in the definition of Cause, or
(ii) Employee terminates his employment without Good Reason, and in each case
Employee receives no severance benefit.

(b)                                 For
purposes of this Section 8, Company shall be construed to include Parent,
Company and its affiliates.

(c)                                  For
purposes of this Section 8, 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 personal auto insurance business.

(d)                                 Notwithstanding
anything to the contrary in the Agreement, Employee may directly or indirectly,
own, solely as an investment, securities of any person engaged in the business
of Company which are publicly traded on a national or regional stock exchange
or on the over-the-counter market if Employee (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.

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(e)                                  Employee
shall not, without the prior written consent of 
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 Company, in furtherance of the
business of and for the benefit of Company; provided that Employee 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
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 Employee to divulge, disclose or make accessible such information;
provided, further, that in the event that Employee is ordered by a court or
other government agency to disclose any Confidential Information, Employee
shall (i) promptly notify  Company of such
order, (ii) at the written request of Company, diligently contest such order at
the sole expense of Company as expenses occur, and (iii) at the written request
of  Company, seek to obtain, at the sole
expense of Company, such confidential treatment as may be available under
applicable laws for any information disclosed under such order. For purposes of
this Section 8(e), “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, employees, officers, directors and other non-public, proprietary and
confidential information relating to the business of Company or its affiliates
or customers, that, in any case, is not otherwise available to the public (other
than by Employee’s breach of the terms hereof) including, but not limited to,
the terms of this Agreement. Upon termination of Employee’s employment with
Company, Employee

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shall return all Company property, including,
without limitation, files, records, disks and any media containing Confidential
Information.

(f)                                    Employee
understands that the provisions of this Section 8 may limit his ability to earn
a livelihood in a business similar to the business of 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  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 Employee. In consideration of
the foregoing and in light of Employee’s education, skills and abilities,
Employee agrees that he shall not assert that, and it should not be considered
that, any provisions of Section 8 otherwise are void, voidable or unenforceable
or should be voided or held unenforceable.

(g)                                 It
is the intention of the parties hereto that the restrictions contained in this
Section 8 be enforceable to the fullest extent permitted by applicable
law.  Therefore, to the extent any court
of competent jurisdiction shall determine that any portion of the foregoing
restrictions is excessive, such provision shall not be entirely void, but rather
shall be limited or revised only to the extent necessary to make it
enforceable.  Specifically, if any court
of competent jurisdiction should hold that any portion of the foregoing
description is overly broad as to one or more states of the United States, then
that state or states shall be eliminated from the territory to which the
restrictions of paragraph (a) of this

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Section applies and the restrictions shall
remain applicable in all other states of the United States.

9.                                       Withholding.  Company may withhold from any amount payable
under this Agreement any taxes required to be withheld under applicable
federal, state or local law.

10.                                 Severability;
Effectiveness.  If any provision of
this Agreement is found, held, or deemed to be void, unlawful, or unenforceable
under any applicable statute or other controlling law, the remainder of this
Agreement shall continue in full force and effect.  This Agreement shall be effective as of the
consummation of the Merger.  If the
Merger is not consummated, this Agreement shall be null and void and of no
force or effect.

11.                                 Governing
Law.  This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California, without regard to principles of conflicts of laws.

12.                                 Costs.  In the event of any contest or dispute
relating to this Agreement (other than relating to the enforceability of
Section 8(a)), Company shall reimburse all reasonable legal expenses of
Employee, upon presentation of appropriate commercial vouchers; provided any
such expenses theretofore paid by or on behalf of Company shall be repaid to
Company if and to the extent that Employee fails to prevail in such dispute.

13.                                 Jurisdiction
and Choice of Forum.  EMPLOYEE AND 
COMPANY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE

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OR
FEDERAL COURT LOCATED IN THE COUNTY OF LOS ANGELES, CALIFORNIA OVER ANY
CONTROVERSY OR CLAIM BETWEEN EMPLOYEE AND 
COMPANY ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT OR
THE TERMINATION OF EMPLOYEE’S EMPLOYMENT.

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

	
  

  	
   

  	
   

  	
   

  	
  21st CENTURY
  INSURANCE GROUP

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Bruce W. Marlow

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Bruce W. Marlow

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  President and Chief

  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  /s/  Michael
  T. Ray

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Michael T. Ray

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  May 14, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Date

  
									

 

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RELEASE OF CLAIMS

1.                                       Release
of Claims

In
consideration of the payments and benefits described in Sections 3 and 4 of the
Retention and Severance Agreement (the “Retention and Severance Agreement”),
dated May 14, 2007, by and between Michael T. Ray (“Employee”) and 21st Century Insurance Group (the “Company”)
and to which Employee agrees Employee is not entitled until and unless he
executes this Release, Employee, for and on behalf of himself and his heirs and
assigns, subject to the following three 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 Employee ever had,
now has or may have against the Company, American International Group, Inc. (“Parent”),
or any of their subsidiary companies, shareholders, successors, assigns,
directors, officers, partners, members, employees or agents, or any benefit
plan sponsored by such company (collectively, the “Releasees”) by reason
of facts or omissions which have occurred on or prior to the date that Employee
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,
Employee acknowledges that he intends to waive and

 A-13
 

release any rights known or unknown that he may have
against the Releasees under these and any other laws; provided, that Employee
does not waive or release claims with respect to the right to enforce the
Retention and Severance Agreement (the “Unreleased Claims”).
Notwithstanding the foregoing, Employee 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 Employee and the Company, or any rights to
insurance coverage under any directors’ and officers’ personal liability
insurance or fiduciary insurance policy. Nothing herein modifies or affects any
vested rights that Employee may have under the American International Group,
Inc. Retirement Plan, the Company’s Supplemental Employee Retirement Plan, any
401(k) or other incentive savings plan, with respect to any equity compensation
or other employee benefit plans within the meaning of Section 3(2) of the
Employee Retirement Income Security Act.

2.                                       Proceedings

Employee
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”). Employee represents that he is not aware
of any basis on which such a Proceeding could reasonably be instituted.

 A-14
 

3.                                       Time
to Consider

Employee
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. EMPLOYEE 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.
EMPLOYEE ACKNOWLEDGES THAT HE HAS NOT BEEN FORCED OR PRESSURED IN ANY MANNER
WHATSOEVER TO SIGN THIS RELEASE, AND EMPLOYEE AGREES TO ALL OF ITS TERMS
VOLUNTARILY.

4.                                       Revocation

Employee
hereby acknowledges and understands that Employee 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), in
writing to the General Counsel of the Company and with a copy to the General
Counsel of Parent, and that neither the Company nor any other person is
obligated to provide any benefits to Employee pursuant to Section 3 or 4 of the
Retention and Severance Agreement until eight (8) days have passed since
Employee’s signing of this Release without Employee 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

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terms of the Retention and Severance Agreement. If
Employee revokes this Release, Employee 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 Employee 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 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
Employee 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 California without giving effect to
conflict of laws principles.

8.                                       Jurisdiction
and Choice of Forum

Employee
and the Company irrevocably submit to the exclusive jurisdiction of any state
or federal court located in the County of Los Angeles, California over any
controversy or claim between Employee and the Company arising out of or

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relating to or concerning this Release.

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

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
  Michael T. Ray

  

 

 A-17Exhibit 10.4

 

RETENTION AND SEVERANCE AGREEMENT

RETENTION
AND SEVERANCE AGREEMENT (this “Agreement”), dated as of May 14, 2007 by
and between 21st Century Insurance Group, a Delaware
corporation (the “Company”) and Jesus C. Zaragoza (the “Employee”).

WHEREAS,
Employee is a key employee of Company;

WHEREAS,
Company, American International Group, Inc., a Delaware corporation (“Parent”),
and AIG TW Corp., a Delaware corporation and wholly-owned indirect subsidiary
of Parent (“Merger Subsidiary”) have entered into an Agreement and Plan
of Merger, dated as of May 15, 2007 (the “Merger Agreement”) pursuant to
which the Merger Subsidiary will merge with and into the Company (the “Merger”);

WHEREAS,
pursuant to the consummation of the transactions contemplated by the Merger
Agreement, Employee is expected to dispose of Employee’s ownership interest in
the Company; and

WHEREAS,
Company desires to provide incentives for Employee to remain employed by
Company and its subsidiaries following the Closing Date of the Merger as
defined in the Merger Agreement (the “Closing Date”).

NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:

1.                                       Employee’s
Duties.  Employee shall perform his
duties with Company and its subsidiaries diligently and to the best of his
ability.  Employee shall use his best
efforts to assist Company in the integration of the businesses of Company and

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Parent and the
continued operation of the business of Company. 
If, with the consent of Employee, the employment of Employee is
transferred to Parent, all references to “Company” in this Agreement (other
than in the recitals at the beginning thereof) shall be understood to refer to “Parent”
except where otherwise required by the context.

2.                                       Retention
Payment.  If Employee remains
employed by Company or its subsidiaries on the first anniversary of the Closing
Date, then Company shall pay to Employee in a lump sum within five (5) business
days thereafter, an amount equal to $250,000 (the “Retention Payment”).

3.                                       Termination
Prior to Twelve Month Anniversary of Closing Date.

(a)                                  If
Company and its subsidiaries terminate the employment of Employee for Cause (as
defined herein) prior to the first anniversary of the Closing Date, or if
Employee terminates employment with Company and its subsidiaries prior to the
first anniversary of the Closing Date for any reason other than Good Reason (as
defined herein), Employee will not be eligible for any payment under this
Agreement.

(b)                                 If
Company and its subsidiaries terminate the employment of Employee without Cause
after the Closing Date and prior to the first anniversary of the Closing Date,
or if Employee terminates employment with Company and its subsidiaries prior to
the first anniversary of the Closing Date for Good Reason, then subject to
Employee’s continued compliance with Section 8 of this Agreement and provided
Employee does not make an Election (as defined below), Company shall:

(A) pay to
Employee an amount equal to $500,000 (such amount, the “Severance”). The
Severance shall be payable in equal monthly installments (each, a

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“Severance Installment”) over the
twelve (12) month period commencing no earlier than the second of Company’s
standard payroll dates falling after such termination; provided, however, that,
if necessary to avoid the application of Section 409A of the Code to the
Severance, Employee shall not receive any installment payment until the first
scheduled payroll date that occurs more than six months following the date of
termination of employment (the “First Payment Date”), and, on the First
Payment Date, Company will pay Employee an amount equal to the sum of all
Severance Installments that would have been payable in respect of the period
preceding the First Payment Date but for the delay imposed on account of the
aforementioned Section 409A; and

(B) provide
continued health and life insurance benefits for Employee and his spouse and
dependents, if any, for a 12 month period following the date of Employee’s
termination of employment, on the same basis as such benefits were provided
during Employee’s employment with Company; provided, that  Company’s obligation to provide such health
and life insurance benefits shall cease with respect to such benefits at the
time Employee becomes eligible for such benefits from another employer.

(c)                                  For
purposes of this Agreement, “Cause” shall
mean, (i) the continued failure by Employee (other than any such failure
resulting from (A) the Employee’s incapacity due to physical or mental illness,
or (B) the Company’s obstruction of the performance of the Employee’s duties
and responsibilities) to perform substantially the duties and responsibilities
of Employee’s position with the Company after a written demand for substantial
performance is delivered to the Employee by the Board of Directors

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of Company (the “Board”), which demand
specifically identifies the manner in which the Board believes that Employee
has not substantially performed such duties or responsibilities and suggests
corrective action that is capable of being implemented within a reasonable
period; (ii) the conviction, or plea of guilty or nolo contendere, of Employee
by a court of competent jurisdiction for felony criminal conduct;  (iii) Employee’s intentional misconduct or
gross negligence in connection with Employee’s duties, or an act of fraud or
material act of dishonesty by Employee, or (iv) Employee’s material violation
of a provision of Parent’s Code of Conduct, as such code of conduct or its
equivalent policies may be in effect from time to time.

(d)                                 For
purposes of this Agreement, “Good Reason” means: (i) a significant
adverse change in the nature or scope of Employee’s Company-related authority
or duties,  (ii) a significant reduction
in compensation or benefits provided by 
Company, or (iii) the geographical location where Employee is required
to perform principal duties is moved to a location more than fifty (50) miles
from such location existing at the date hereof;  provided
that, a termination by Employee with Good Reason shall be effective only if,
within sixty (60) days following Employee’s first becoming aware of the
circumstances giving rise to Good Reason, Employee delivers a notice of
termination for Good Reason by Employee to Company, and Company within thirty
(30) days following its receipt of such notification has failed to cure the
circumstances giving rise to Good Reason. For purposes of this paragraph 3(d),
Employee acknowledges and agrees that Good Reason shall not be deemed to occur
(A) solely on account of Company no longer being a publicly traded entity, (B)
solely as a result of the Merger or (C) as a

 4
 

result of Employee having to undertake
reasonable business travel, including travel to Delaware to implement the integration
of Company with Parent.

4.                                       Termination
Between First Anniversary and Third Anniversary of Closing Date.   If Company and its subsidiaries terminate
the employment of Employee without Cause between the first anniversary of the
Closing Date and the third anniversary of the Closing Date, or if Employee
terminates employment with Company and its subsidiaries for Good Reason between
the first anniversary of the Closing Date and the third anniversary of the
Closing Date, then subject to Employee’s continued compliance with Section 8 of
this Agreement and provided Employee does not make an Election (as defined
below), Company shall:

(a)                                  pay
to Employee the amount of $250,000 (such total sum shall be referred to as the “Subsequent
Severance”).  The Subsequent
Severance shall be payable in equal monthly installments over the twelve
(12) month period commencing no earlier than the second of Company’s
standard payroll dates falling after such termination (the “Subsequent
Severance Installments”); provided, however, that, if necessary to avoid
the application of Section 409A of the Code to the Subsequent Severance,
Employee shall not receive any installment payment until the First Payment Date
and, on the First Payment Date,  Company
will pay Employee an amount equal to the sum of all Subsequent Severance
Installments that would have been payable in respect of the period preceding
the First Payment Date but for the delay imposed on account of the
aforementioned Section 409A; and

 5
 

(b)                                 provide
continued health and life insurance benefits for Employee and his spouse and
dependents, if any, for a 12 month period following the date of Employee’s
termination of employment, on the same basis as such benefits were provided
during Employee’s employment with Company; provided, that Company’s obligation
to provide such health and life insurance benefits shall cease with respect to
such benefits at the time Employee becomes eligible for such benefits from
another employer.

5.                                       Release.  Notwithstanding any other provision of this Agreement
to the contrary, Employee acknowledges and agrees that any and all payments and
benefits to which Employee is entitled under Sections 3 and 4 of this Agreement
are conditioned on and subject to Employee’s execution of a general release and
waiver, substantially in the form attached as Exhibit A hereto.

6.                                       Effect
on Severance Benefits.  This
Agreement contains the entire understanding of the parties with respect to the
subject matter of this Agreement and, without limiting the effect of the
foregoing, specifically supersedes any individual Retention Agreement,
employment agreement (including, but not limited to, any individual hire
agreement), severance agreement and Company’s Executive Severance Plan.

7.                                       No
Alienation.  Employee shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
the benefits provided under this Agreement, and such benefits shall not be
assignable in anticipation of payment whether by voluntary or involuntary acts,
or by operation of law, other than the law of descent and distribution.

 6
 

8.                                       Non-Competition;
Non-Solicitation.  Employee
acknowledges and recognizes the highly competitive nature of the businesses of
Company, Parent and their subsidiaries and accordingly agrees as follows:

(a)                                  While
employed by Company and for a period of twelve (12) months following the date
Employee ceases to be employed by Company (the “Restricted Period”),
Employee will not directly or indirectly, on behalf of any person or entity
other than Company, (u) engage in any “Competitive Business” (defined below),
(v) enter the employ of, or render any services to, any person engaged in any
Competitive Business with respect to such business, (w) 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, (x)
interfere with business relationships (whether formed before or after the Closing
Date) between  Company and customers or
suppliers of, or consultants to, Company, (y) solicit, contact, communicate or
attempt to communicate with, regarding products or services offered or proposed
to be offered by Company, any customer or client or prospective customer or
prospective client of Company (for purposes of this Section 8, “customer or
client” shall not include insurance brokers) or (z) regardless of who initiates
the communication, solicit, participate in the solicitation or recruitment of,
or in any manner encourage or provide assistance to, any employee, consultant
or agent of Company (or who was an employee of Company within the prior 12
months) to terminate his or her employment or other relationship with Company
or to leave its employ or other relationship with  Company for any engagement in any capacity or
for any other person or

 7
 

entity; provided, however, that Employee may
elect to waive receipt of the Severance and Subsequent Severance (the “Election”),
in which case Sections 8(a)(u), 8(a)(v) and 8(a)(w) will not apply to the
Employee; and provided, further, that Sections 8(a)(u), 8(a)(v) and 8(a)(w)
shall not apply to Employee if (i) Employee’s employment is terminated by
Company for Cause pursuant to Section 3(c)(i) in the definition of Cause, or
(ii) Employee terminates his employment without Good Reason, and in each case
Employee receives no severance benefit.

(b)                                 For
purposes of this Section 8, Company shall be construed to include Parent,
Company and its affiliates.

(c)                                  For
purposes of this Section 8, 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 personal auto insurance business.

(d)                                 Notwithstanding
anything to the contrary in the Agreement, Employee may directly or indirectly,
own, solely as an investment, securities of any person engaged in the business
of Company which are publicly traded on a national or regional stock exchange
or on the over-the-counter market if Employee (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.

(e)                                  Employee
shall not, without the prior written consent of 
Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity, any “Confidential Information”
(as defined below) except

 8
 

while employed by Company, in furtherance of
the business of and for the benefit of Company; provided that Employee 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 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 Employee to divulge, disclose or make accessible such
information; provided, further, that in the event that Employee is ordered by a
court or other government agency to disclose any Confidential Information,
Employee shall (i) promptly notify 
Company of such order, (ii) at the written request of Company,
diligently contest such order at the sole expense of Company as expenses occur,
and (iii) at the written request of 
Company, seek to obtain, at the sole expense of Company, such
confidential treatment as may be available under applicable laws for any
information disclosed under such order. For purposes of this Section 8(e), “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, employees, officers, directors
and other non-public, proprietary and confidential information relating to the
business of Company or its affiliates or customers, that, in any case, is not
otherwise available to the public (other than by Employee’s breach of the terms
hereof) including, but not limited to, the terms of this Agreement. Upon
termination of Employee’s employment with Company, Employee shall return all
Company property, including, without limitation, files, records, disks and any
media containing Confidential Information.

 9
 

(f)                                    Employee
understands that the provisions of this Section 8 may limit his ability to earn
a livelihood in a business similar to the business of 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  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 Employee. In consideration of
the foregoing and in light of Employee’s education, skills and abilities,
Employee agrees that he shall not assert that, and it should not be considered
that, any provisions of Section 8 otherwise are void, voidable or unenforceable
or should be voided or held unenforceable.

(g)                                 It
is the intention of the parties hereto that the restrictions contained in this
Section 8 be enforceable to the fullest extent permitted by applicable
law.  Therefore, to the extent any court
of competent jurisdiction shall determine that any portion of the foregoing
restrictions is excessive, such provision shall not be entirely void, but
rather shall be limited or revised only to the extent necessary to make it
enforceable.  Specifically, if any court
of competent jurisdiction should hold that any portion of the foregoing
description is overly broad as to one or more states of the United States, then
that state or states shall be eliminated from the territory to which the
restrictions of paragraph (a) of this Section applies and the restrictions
shall remain applicable in all other states of the United States.

 10
 

9.                                       Withholding.  Company may withhold from any amount payable
under this Agreement any taxes required to be withheld under applicable
federal, state or local law.

10.                                 Severability;
Effectiveness.  If any provision of
this Agreement is found, held, or deemed to be void, unlawful, or unenforceable
under any applicable statute or other controlling law, the remainder of this
Agreement shall continue in full force and effect.  This Agreement shall be effective as of the
consummation of the Merger.  If the
Merger is not consummated, this Agreement shall be null and void and of no
force or effect.

11.                                 Governing
Law.  This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California, without regard to principles of conflicts of laws.

12.                                 Costs.  In the event of any contest or dispute
relating to this Agreement (other than relating to the enforceability of
Section 8(a)), Company shall reimburse all reasonable legal expenses of
Employee, upon presentation of appropriate commercial vouchers; provided any
such expenses theretofore paid by or on behalf of Company shall be repaid to
Company if and to the extent that Employee fails to prevail in such dispute.

13.                                 Jurisdiction
and Choice of Forum.  EMPLOYEE AND 
COMPANY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN THE COUNTY OF LOS ANGELES, CALIFORNIA OVER ANY
CONTROVERSY OR CLAIM BETWEEN EMPLOYEE

 11
 

AND
COMPANY ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT OR THE
TERMINATION OF EMPLOYEE’S EMPLOYMENT.

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

	
  

  	
   

  	
   

  	
   

  	
  21st CENTURY
  INSURANCE GROUP

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Bruce W. Marlow

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Bruce W. Marlow

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  President and Chief

  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  /s/  Jesus C.
  Zaragoza

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Jesus C. Zaragoza

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  May 14, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Date

  
									

 

 12

RELEASE OF CLAIMS

1.                                       Release
of Claims

In
consideration of the payments and benefits described in Sections 3 and 4 of the
Retention and Severance Agreement (the “Retention and Severance Agreement”),
dated May 14, 2007, by and between Jesus C. Zaragoza (“Employee”) and 21st Century Insurance Group (the “Company”)
and to which Employee agrees Employee is not entitled until and unless he
executes this Release, Employee, for and on behalf of himself and his heirs and
assigns, subject to the following three 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 Employee ever
had, now has or may have against the Company, American International Group,
Inc. (“Parent”), or any of their subsidiary companies, shareholders,
successors, assigns, directors, officers, partners, members, employees or
agents, or any benefit plan sponsored by such company (collectively, the “Releasees”)
by reason of facts or omissions which have occurred on or prior to the date
that Employee 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,
Employee acknowledges that he intends to waive and

 A-13
 

release any rights known or unknown that he may have
against the Releasees under these and any other laws; provided, that Employee
does not waive or release claims with respect to the right to enforce the
Retention and Severance Agreement (the “Unreleased Claims”).
Notwithstanding the foregoing, Employee 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 Employee and the Company, or any rights to
insurance coverage under any directors’ and officers’ personal liability
insurance or fiduciary insurance policy. Nothing herein modifies or affects any
vested rights that Employee may have under the American International Group,
Inc. Retirement Plan, any 401(k) or other incentive savings plan, with respect
to any equity compensation or other employee benefit plans within the meaning
of Section 3(2) of the Employee Retirement Income Security Act.

2.                                       Proceedings

Employee
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”). Employee represents that he is not aware
of any basis on which such a Proceeding could reasonably be instituted.

3.                                       Time
to Consider

Employee
acknowledges that he has been advised that he has twenty-one

 A-14
 

(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. EMPLOYEE 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. EMPLOYEE ACKNOWLEDGES THAT HE HAS NOT
BEEN FORCED OR PRESSURED IN ANY MANNER WHATSOEVER TO SIGN THIS RELEASE, AND
EMPLOYEE AGREES TO ALL OF ITS TERMS VOLUNTARILY.

4.                                       Revocation

Employee
hereby acknowledges and understands that Employee 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), in
writing to the General Counsel of the Company and with a copy to the General
Counsel of Parent, and that neither the Company nor any other person is
obligated to provide any benefits to Employee pursuant to Section 3 or 4 of the
Retention and Severance Agreement until eight (8) days have passed since
Employee’s signing of this Release without Employee 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 Retention and Severance Agreement. If Employee
revokes this Release,

 A-15
 

Employee 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 Employee 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 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
Employee 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 California without giving effect to
conflict of laws principles.

8.                                       Jurisdiction
and Choice of Forum

Employee
and the Company irrevocably submit to the exclusive jurisdiction of any state
or federal court located in the County of Los Angeles, California over any
controversy or claim between Employee and the Company arising out of or
relating to or concerning this Release.

 A-16
 

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

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
  Jesus C. Zaragoza

  

 

 A-17

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