Employment Agreement

Exhibit 10.1


EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the " Agreement" ) is dated as of this 24th day of May, 2005, and is between Sunterra Corporation, a Maryland corporation (the " Company" ), and David Lucas (the " Executive" ).


RECITALS :


WHEREAS, the Company recognizes that the future growth, profitability and success of the Company' s business will be substantially and materially enhanced by the employment of the Executive by the Company; and


WHEREAS, the Company desires to employ the Executive and the Executive has indicated his willingness to provide his services, on the terms and conditions set forth herein.


NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1. Definitions

For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 1 unless the context clearly requires otherwise.


a. " Agreement" means this agreement by and between the Company and David Lucas dated as of the Effective Date.


b. Effective " Base Salary" means the base salary payable to the Executive, as determined pursuant to Section 3.

c. " Beneficiary" means the person or persons designated by the Executive to receive payments hereunder due upon the Executive' s death or, in the absence of such a designation, the Executive' s estate.

d. " Board of Directors" means the Board of Directors of the Company.


e. " Bonus" means the bonus payable to the Executive, as determined pursuant to Section 3.

f. " Cause" means: (i) any breach of this Agreement by the Executive (or willful or intentional act of the Executive) that injures the reputation or business of the Company or its affiliates in any material respect; (ii) any continued or repeated absence from the Company other than in connection with activities performed by the Executive that are consistent with the terms and conditions of the Agreement, unless such absence is (A) approved or excused by the CEO, or (B) is the result of the Executive' s illness, Disability (in which event the provisions of Section 6(b) hereof shall control) or incapacity; (iii) the Executive' s conviction of a felony or pleading of no contest to a felony; or (iv) the commission by the Executive of an act of fraud or embezzlement against the Company (v) the Executive' s failure to substantially perform the Executive' s duties hereunder, other than a failure resulting from a Disability; (vi) Executive' s being absent from work more than thirty (30) days in any six (6) month period other than as a result of a Disability; or (vii) the engaging by the Executive in any act inconsistent with the best interests of, or competitive with, the Company.

g. " Change in Control" shall mean the following events or circumstances that occur after the Commencement Date: (i) the consummation of any sale, transfer or other disposition of all or substantially all of the assets of the Company through one transaction or a series of related transactions to one or more persons or entities; or (ii) any " Person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the " Exchange Act" ) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a " beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the


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Company representing more than 50% of the combined voting power of the Company' s then outstanding securities eligible to vote for the election of the Board; or (iii) the consummation of a merger, consolidation, reorganization, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company' s stockholders, whether for such transaction or the issuance of securities in the transaction; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution.


h. " Commencement Date" means June TBD, 2005.

i. " Disability" means a physical or mental incapacity of the Executive as a result of which Executive is entitled to benefits under the Company' s long-term disability plan.

j. Employer" means the Company.

k. " Employment Term" means as defined in Section 2A.

l. " Executive" means David Lucas.

m. " Good Reason" when used with reference to a termination by Executive of his employment with the Company means any of the following, provided, however, that Good Reason shall not exist upon a termination of employment described in Section 6(b), (c) or (e):

i. any material Reduction in Duties, except (x) if Cause for such action exists, whether or not the Company has sought to terminate Executive' s employment by the Company, or (y) on account of Disability pursuant to the requirements of this Agreement;

ii. if during the one year period following a Change in Control (as defined below) the Executive is not retained by the Company as its CMO or in a similar capacity;


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iii. if during the one year period following a Change in Control (as defined below), a change in Executive' s principal work location to a location more than fifty (50) miles from its current location (other than required travel on the Company' s business to an extent substantially consistent with Executive' s business travel obligations as contemplated hereunder);


iv. a material reduction in the Base Salary payable to Executive, except, in each case, (x) if Cause for such action exists, whether or not the Company has sought to terminate Executive' s employment by the Company, or (y) on account of Disability pursuant to the requirement of this Agreement or (z) at the election of Executive; or

v. the failure by the Company to pay Executive any portion of Executive' s current compensation, or any portion of Executive' s compensation deferred under any plan, agreement or arrangement of or with the Company, within thirty (30) days after the date such compensation is due, except if such payment is not made as a result of the insolvency or bankruptcy of the Company as provided in Section 18 hereof.


n. " Reduction in Duties" of the Chief Marketing Officer means, with respect to any of the following events or circumstances implemented or requested by the CEO or Board of Directors (but not as a result of unilateral acts by Executive): (i) any material reduction, whether in practice and/or effect in Executive' s duties as Chief Marketing Officer; (ii) any material reduction, whether in practice and /or effect, in Executive' s title as Chief Marketing Officer; (iii) any material reduction, whether in practice and/or effect, in Executive' s reporting relationship to a lower level of management within the Company.

o. " Severance Benefit" means as defined in Section 6(h)(1).


2. Employment . The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to the terms and conditions contained herein, the Executive shall serve as the Chief Marketing Officer of the Company and in such capacity shall report directly to


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the Chief Executive Officer of the Company (the " CEO" ). The Executive shall have such duties as are typically performed by an executive of a corporation of similar size and type as the Company in such capacity, including, but not limited to, the duties described on the job specification attached hereto as Exhibit A, together with such additional duties, commensurate with the Executive' s position, as may be assigned to the Executive from time to time by the CEO. The principal location of the Executive' s employment shall be at the Company' s principal office located in Las Vegas, Nevada. The Executive understands and agrees that he will be required to travel for business reasons.


2A. Commencement Date; Employment Term . The Executive' s employment hereunder shall commence on June 27, 2005 (the " Commencement Date" ) and the term of the Executive' s employment (the " Employment Term" ) shall continue until terminated pursuant to Section 6.


3. Compensation and Benefits . During the Employment Term, the Executive shall be entitled to the following compensation and benefits:

(a) Salary . As compensation for the performance of the Executive' s services hereunder, the Company shall pay to the Executive a salary (the " Salary" ) of $350,000 per annum, with increases as may be approved in writing from time to time by the CEO. The Salary shall be payable in accordance with the payroll practices of the Company as the same shall exist from time to time.


(b) Annual Bonus . The Executive shall be eligible to participate in the Company' s discretionary annual cash bonus plan (the " Annual Bonus Plan" ). The Executive shall be eligible to receive a bonus under the Annual Bonus Plan (the " Bonus" ) in an amount up to 100% of this base salary per year for each calendar year during the Employment Term, subject to the satisfaction of performance goals to be established by the Company, in consultation with the Executive; provided that, with respect to the period beginning on the Commencement Date and ending on September 30, 2005, the Executive shall be eligible to receive a pro-rata Bonus in an amount up to [$87,500].


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Said pro-rata Bonus (plus an additional $50,000) shall be guaranteed. The Executive shall not be eligible to receive a Bonus unless the Executive is employed by the Company on the date the Bonus is paid by the Company.


(c) Equity . The Company shall grant to the Executive, in conjunction with its awards to Sunterra management for fiscal year 2005, [at least 20,000]* restricted shares of the common stock of the Company, par value $0.01 per share (the " Restricted Stock" ) pursuant to the Sunterra Corporation 2005 Incentive Plan (the " Incentive Plan" ). The Restricted Stock shall be subject to four-year vesting under which the Executive will receive 25% of the Restricted Stock on the date of grant and a further 25% each year on and after each of the first, second and third anniversaries of the date of grant. The Restricted Stock shall have such other terms and conditions as are set forth in the 2005 Incentive Plan and the Executive' s Restricted Stock Agreement, which shall not be inconsistent with the terms described in this Section 3(c). The Executive shall be eligible to receive further grants of Restricted Stock pursuant to the Incentive Plan during the course of his employment.


(d) Benefits . The Executive shall be entitled to participate in the health, insurance, retirement and other benefits provided to senior executives of the Company on terms no less favorable than those available to such other senior executives. The Executive shall be entitled to all other benefits as are generally provided to senior executives of the Company, in accordance with the Company' s policies in effect from time to time, including 4 weeks of paid vacation per year (to be prorated in the first year).


(e) Relocation and Temporary Housing Expenses . In connection with the performance of the Executive' s services hereunder:

i. The Company shall reimburse the Executive for the reasonable temporary housing costs and travel costs incurred by the Executive during a * Board is still finalizing this plan


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mutually agreed upon period following the Commencement Date until the Executive permanently relocates to a location near the Company' s principal office in Las Vegas, Nevada.


ii. Subject to the submission of properly documented receipts and the terms of the Company' s relocation program, the Company shall reimburse (or, at the Company' s option, may directly pay) the Executive for the reasonable costs incurred by the Executive in connection with his relocation from the Philadelphia, Pennsylvania area to the greater Las Vegas, Nevada area to include interim living expenses, (3) house hunting trips for any dependents, costs associated with moving household goods to include backing and unpacking, relocation of automobile and storage for up to six (6) months. The foregoing notwithstanding there will be no reimbursement for closing costs (including brokerage fees, taxes, title insurance, points etc.) associated with buying a new residence or selling the existing residence.

iii. In addition, the Company will pay to Executive such additional sums as shall be necessary so that Executive receives, on an after- tax basis, the economic equivalent of such reimbursement.


iv. Notwithstanding the foregoing, in the event the Executive terminates his employment with the Company pursuant to Section 6(e) herein prior to the first anniversary of the Commencement Date, the Executive agrees to pay to the Company in a single lump sum upon demand by the Company, the amount paid to the Executive pursuant to this Section 3(e), multiplied by the ratio of (A) the number of days during the period beginning on the Termination Date (as defined in Section 6(h) and ending on the one year anniversary of the Commencement Date, and (B) 365.


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4. Exclusivity . During the Employment Term, the Executive shall devote his full time to the business of the Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him by the CEO, or such other person as may be designated by the CEO, in accordance with the terms of this Agreement, shall use his best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may (i) participate in the activities of professional trade organizations, and (ii) engage in personal investing activities, provided that activities set forth in these clauses (i) and (ii), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder.


5. Reimbursement for Expenses . Except with respect to relocation and temporary housing expenses incurred by the Executive, which shall be reimbursed by the Company pursuant to Section 3(e) herein, the Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, lodging, entertainment, maintaining professional licenses and certifications and attendance at association meetings and conferences in accordance with the Company' s expense reimbursement policy, as the same may be modified by the Company from time to time. The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of ...