CORNETT LOAN FORGIVENESS AGREEMENT
This Cornett Loan Forgiveness Agreement ("Agreement") is made and
entered into by and between AMERICAN CAPITOL INSURANCE COMPANY
("Employer"), a Texas life insurance company, and JOHN D. CORNETT
("Employee"), an individual resident of Houston, Harris County, Texas,
hereinafter sometimes referred to in the singular as "party" and in the
plural as "parties."
SECTION 1
RECITALS
1. The following recitals are hereby adopted and agreed to by the
parties:
1.1 The definitions set forth below apply to the words used in these
recitals.
1.2 Employee owns a Life Insurance Policy issued by Metropolitan Life
Insurance Company which is the subject of the Split Dollar
Agreement between Employee and Employer, which Split Dollar
Agreement is hereby incorporated by reference thereto for all
purposes.
1.3 Employee and Employer are parties to the Cornett Employment
Agreement which is hereby incorporated herein by reference thereto
for all purposes.
1.4 The Split Dollar Agreement provides that premiums paid by Employer
on the Life Insurance Policy are subject to repayment out of the
Life Insurance Policy Proceeds, as set forth in the Split Dollar
Agreement, thus creating a Loan.
1.5 The parties understand that forgiveness by Employer of the Loan, or
any portions thereof, will constitute taxable income to Employee
for the year in which such forgiveness takes place and all
conditions precedent to such forgiveness have been fulfilled and/or
expire, but each party is responsible for the tax consequences of
the compensation provided by this Agreement, and no assurances
regarding tax consequences have been given by either party to the
other.
1.6 The parties intend by this Loan Forgiveness Agreement to establish
a program under which the Loan is forgiven in incremental amounts
but each such forgiveness shall be subject to the fulfillment or
continued existence of specified conditions or obligations, as the
case may be, as set forth herein.
SECTION 2
DEFINITIONS
2. The following terms used in this Agreement with initial
capitalization shall have the meanings set forth below unless the
rules of grammar or form would require otherwise:
2.1 "Applied" means the reduction of the Loan by the amount of the
subject Loan Forgiveness Credit, occurring upon the designated
event or date, prior to which the Loan Forgiveness Credit does not
operate to reduce the Loan.
2.2 "Cornett Employment Contract" means that certain written contract
dated April 1, 2000, between Employer and Employee relating to
Employer's employment of Employee.
2.3 "Disability" of Employee shall have the same meaning as set forth
in Section 8(a)(5) of the Cornett Employment Agreement.
2.4 "Employee" means John D. Cornett, an employee of American Capitol
Insurance Company.
2.5 "Employer" means American Capitol Insurance Company of Houston,
Texas, or its successor, if applicable.
2.6 "Life Insurance Policy" means that certain life insurance policy
No. 953206270PR issued by Metropolitan Life Insurance Company that
is the subject of the Split Dollar Agreement.
2.7 "Loan" means the aggregate amount of the debt that must be repaid
out of the Life Insurance Policy "cash value" or the death proceeds
of the Life Insurance Policy, as the case may be, which debt is
created by virtue of payments by Employer of Premiums on the Life
Insurance Policy, less any reductions in the amount of the debt
resulting from payments made by Employee that reduce the debt and
less any Loan Forgiveness Credit or Loan Forgiveness Credits
applied to reduce the debt pursuant to this Agreement.
2.8 "Loan Forgiveness Credit" means an amount equal to $18,000 which,
when applied, will constitute a reduction of the Loan by that
amount as contemplated in Section 2.7.
2.9 "Premium" means the aggregate of the annual premium due on the Life
Insurance Policy ($6,054.84) plus the amount of the annual premium
due on the Paid-Up Additional Rider ($11,918.00), which fall due on
August 13 of each year.
2.10 "Retirement" means the date on which Employee gives written notice
to Employer of his election to discontinue his employment with
Employer or any employer with whom he may be employed after
attaining the age of 60.
2.11 "Split Dollar Agreement" means that certain written contract dated
November 21, 1995, between Employer and Employee relating to the
Life Insurance Policy on which Employer pays the premiums under
which Employee is the owner and the insured.
SECTION 3
AGREEMENT
3. Employer and Employee hereby agree as follows:
3.1 The above recitals and definitions are true and correct.
3.2 For the years 2000, 2001, and 2002, effective on August 13 of each
such year, subject to the terms and conditions of this Agreement,
Employee shall be entitled to, and shall receive, a Loan
Forgiveness Credit.
3.3 For each of the years 2000, 2001, and 2002, subject to the terms
and conditions of this Agreement, Employer shall pay the Premium
that falls due on the Life Insurance Policy on August 13 of each
such year.
3.4 The Loan Forgiveness Credits shall be applied as follows: On the
first of the month falling next after the first to occur of
Employee's Disability or Retirement, one Loan Forgiveness Credit
shall be applied, and thereafter one Loan Forgiveness Credit shall
be applied on the same date on each successive year until the full
amount of the Loan has been forgiven or all Loan Forgiveness
Credits to which Employee is entitled have been applied. In the
event of Employee's death, all unapplied Loan Forgiveness Credits
shall be applied as of the date of death of Employee.
3.5 In the event of the termination of the Split Dollar Agreement
pursuant to Article IV (a), (b), (c), or (d) of the Split Dollar
Agreement, the amount of the Loan will be determined by this
Agreement and not by the Split Dollar Agreement.
3.6 Notwithstanding anything to the contrary contained herein, (i)
Employer shall not be obligated to pay any Premium, (ii) Employee
shall not be entitled to any Loan Forgiveness Credit, and (ii) no
Loan Forgiveness Credit shall be applied at any time subsequent to
an event that constitutes a material violation by Employee of any
provision of the Cornett Employment Agreement. For purposes of
this Section, "material violation" as used in the immediately
preceding sentence shall include, but shall not be limited to, any
event or development that entitles Employer to terminate Employee's
employment "for cause" as set forth in Section 10 of the Cornett
Employment Agreement. The parties acknowledge that the Cornett
Employment Agreement contains certain limitations or restrictions
that apply to Employee even if he is no longer employed by
Employer.
SECTION 4
MISCELLANEOUS
4.1 Notices. Any notice required or permitted under this Agreement
shall be in writing, signed by the party giving the notice, and
shall be deemed to be delivered three business days after deposit
in the United States mail, postage prepaid, certified or registered
mail, return receipt requested, addressed as follows:
If to Employer: American Capitol Insurance Company
10555 Richmond Avenue
Houston, Texas 77042
Attention: William F. Guest
If to Employee: John D. Cornett
10922 Burgoyne
Houston, Texas 77042
Notice given in any other manner shall be effective when received
by the addressee. The address for notice may be changed by notice
given in accordance with this provision.
4.2 Amendments. This Agreement and any attachments incorporated by
reference constitute the entire agreement between the parties and
may not be amended, supplemented, waived, or terminated except by
written instrument executed by the parties and delivered by each
party to the other.
4.3 Waiver. No waiver of any provision of this Agreement shall
constitute a waiver of any other provision of this Agreement, nor
shall such waiver constitute a waiver of any subsequent breach of
such provision. No waiver shall be effective except by written
instrument executed by the parties and delivered by each party to
the other.
4.3 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective heirs,
executors, successors and assigns, as the case may be.
Notwithstanding anything herein to the contrary, this Agreement is
not assignable by Employee.
4.5 Governing Law. The validity, construction, and enforcement of this
Agreement shall be governed by the laws of the State of Texas. In
the event of a dispute concerning this Agreement, the parties agree
that venue lies in a court of competent jurisdiction in Harris
County, Texas.
4.6 Severability. If any provision of this Agreement is declared
unenforceable by a court of last resort, such declaration shall not
effect the validity of any other provisions of this Agreement.
4.7 Construction. The headings contained in this Agreement are for
reference purposes only and shall not affect this Agreement in any
manner whatsoever. Whenever required by the context, any gender
shall include any other gender, the singular shall include the
plural, and the plural shall include the singular.
4.8 Time for Performance. If the time for performance of any
obligation set forth in this Agreement falls on a Saturday, Sunday,
a legal holiday, or a day on which the offices of Employer are
officially closed for any reason, compliance with such obligation
on the next business day following such Saturday, Sunday, legal
holiday, or day on which Employer's offices are officially closed,
shall be deemed acceptable.
4.9 Counterparts. This Agreement shall be executed in duplicate
counterparts, each of which shall be deemed an original but shall
be deemed one instrument.
4.10 Authorization. The making and performance by Employer of this
Agreement have been duly authorized by Employer's Board of
Directors, and the undersigned representative of Employer is fully
empowered and authorized to execute this Agreement on its behalf.
This Agreement is executed to be effective as of April 1, 2000.
EMPLOYER: EMPLOYEE:
AMERICAN CAPITOL INSURANCE COMPANY
By: /s/William F. Guest /s/John D. Cornett
---------------------------- -----------------------
William F. Guest, Chairman John D. Cornett
