EXHIBIT 10.9
FORM OF AGREEMENT
AGREEMENT
This Agreement dated as of _________, 1997 by and among HFS
Incorporated, a Delaware corporation ("HFS"), CUC International, Inc., a
Delaware corporation (the "Merger Partner" and, following consummation of the
Merger, as hereinafter defined, the "Company"), and Xxxxx X. Xxxxxxx
("Executive").
WHEREAS, the Executive and HFS are parties to a certain Agreement
dated as of January 15, 1992, as amended as of October 1, 1994 (the "Existing
Agreement"); and
WHEREAS, subject to the consummation of the transactions
contemplated by the Agreement and Plan of Merger between HFS and the Merger
Partner, dated as of May 27, 1997 (the "Merger Agreement"), whereby HFS will
be merged with and into the Merger Partner with the Merger Partner being the
surviving corporation (the "Merger"), HFS, the Merger Partner and the
Executive wish to make arrangements for the Executive's employment by the
Company from and after the Merger;
WHEREAS, to implement those arrangements, the Executive, HFS and
the Merger Partner wish to make certain further amendments to the Existing
Agreement and to restate the Existing Agreement as so amended in its entirety
herein for ease of reference, subject to and effective as of and upon the
consummation of the Merger.
NOW THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION I
EMPLOYMENT
Subject to the consummation of the Merger, the Company agrees to
employ the Executive and the Executive agrees to be employed by the Company
for the Period of Employment as provided in Section III.A below and upon the
terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment through December 31, 1999, the
Executive agrees to serve as Senior Executive Vice
President and General Counsel of the Company, reporting directly to the Chief
Executive Officer of the Company, and during the Employment Period from and
after January 1, 2000, the Executive agrees to serve as Senior Executive Vice
President of the Company and General Counsel of the HFS Division of the
Company (regardless of the name by which such division is designated),
reporting to the President of the HFS Division of the Company. During the
Period of Employment, the Executive shall serve as a member of the Board of
Directors of the Company for the period for which he is and shall from time to
time be elected.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under this Agreement (the
"Period of Employment") will begin on the Closing Date (as defined in the
Merger Agreement) and end on the fifth anniversary thereof, subject to
extension or termination as provided in this Agreement. On the first
anniversary of the Closing Date, and on each subsequent anniversary thereof,
the Period of Employment will be automatically extended by an additional year
unless prior to such anniversary, the Company shall deliver to the Executive,
or the Executive shall deliver to the Company, written notice that the Period
of Employment will end at the expiration of the then-existing Period of
Employment, including any previous extensions thereof, and will not be further
extended except by agreement of the Company and the Executive. The Period of
Employment shall continue until the expiration of all automatic extensions
unless it is terminated as provided in this Agreement.
B. Duties
During the Period of Employment and except for illness, incapacity
or any reasonable vacation periods in any calendar year, the Executive shall
devote all of his business time, attention and skill exclusively to the
business and affairs of the Company and its subsidiaries. The Executive will
not engage in any other business activity and will perform faithfully the
duties which may be assigned to him from time to time by the Chief Executive
Officer of the Company consistent with Section II of this Agreement. Nothing
in this Agreement shall preclude the Executive from devoting time during
reasonable periods required for:
-2-
i. Serving, with the prior approval of the Chairman of the
Board, the Chief Executive Officer or the Board of Directors of the Company,
as a director or member of a committee or organization involving no actual or
potential conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking engagements;
iii. Engaging in charitable and community activities; and
iv. Investing his personal assets in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities described in clauses i, ii and iii, above will be allowed as
long as they do not materially affect or interfere with the performance of the
Executive's duties and obligations to the Company.
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation
For all services rendered by the Executive pursuant to this
Agreement during the Period of Employment, including services as an executive,
officer, director or committee member of the Company or any subsidiary of the
Company, the Executive shall be compensated as follows:
i. Base Salary
The Company shall pay the Executive a fixed base salary
("Base Salary") of not less than $500,000 per annum, subject to annual
increases as the Company deems appropriate, in accordance with the Company's
customary procedures regarding the salaries of senior officers. Annual
increases in Base Salary, once granted, shall not be subject to revocation.
Base Salary shall be payable according to the customary payroll practices of
the Company but in no event less frequently than once each month.
-3-
ii. Annual Incentive Awards
The Executive will be eligible for discretionary annual
incentive compensation awards; provided, that the Executive will be eligible
to receive an annual bonus for each fiscal year that ends after the date of
the Merger Agreement and before the end of the Period of Employment based upon
a target bonus of $500,000 (each such bonus, an "Incentive Compensation
Award").
iii. Long-Term Incentive Awards
The Executive will be eligible for discretionary stock
option and restricted stock awards including, without limitation, restricted
stock and stock option awards as identified in Exhibit 5.17 to the Merger
Agreement, such restricted stock to vest in three equal installments, and such
options to vest in four equal installments, commencing of the first
anniversary of the Closing Date.
B. Additional Benefits
i. In addition, the Executive will be entitled to
participate in all other compensation or employee benefit plans or programs
and receive all benefits and perquisites for which salaried employees of the
Company generally are eligible under any plan or program now or later
established by the Company on the same basis as similarly situated senior
executives of the Company. The Executive will participate to the extent
permissible under the terms and provisions of such plans or programs, in
accordance with program provisions. These include any group hospitalization,
health, dental care, life or other insurance, savings, thrift and profit
sharing plans, termination pay programs, sick leave plans, travel or accident
insurance, disability insurance, company auto allowance or auto lease plans,
and contingent compensation plans, including capital accumulation programs and
stock option plans, which the Company may establish. Nothing in this Agreement
will preclude the Company from amending or terminating any of the plans or
programs applicable to salaried employees or senior executives as long as such
amendment or termination is applicable to all salaried employees or senior
executives, as the case may be. The Company will furnish to the Executive
long-term disability insurance in an amount not less than sixty percent (60%)
of Base Salary. The Company will reimburse the Executive for the cost of an
annual physical examination of the Executive by a physician selected by the
Executive. The Company will also furnish to the Executive (or reimburse the
Executive for) personal financial, investment or tax advice in an amount not
to exceed $4,500 per year.
-4-
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel
and other expenses incurred by the Executive in connection with the
performance of his duties and obligations under this Agreement. The Executive
shall comply with such limitations and reporting requirements with respect to
expenses as may be established from time to time.
SECTION VI
DISABILITY
A. i. If the Executive becomes Disabled, as defined below,
during the Period of Employment, the Period of Employment may be terminated at
the option of the Executive upon notice of resignation to the Company or at
the option of the Company upon notice of termination to the Executive.
"Disabled" means a determination by an independent competent medical authority
that the Executive is unable to perform his duties under this Agreement and in
all reasonable medical likelihood such inability will continue for a period in
excess of one hundred and eighty (180) days. Unless otherwise agreed by the
Executive and the Company, the independent medical authority shall be selected
by the Executive and the Company each selecting a board-certified licensed
physician and the two physicians selected designating an independent medical
authority, whose determination that the Executive is Disabled shall be binding
upon the Company and the Executive. In such event, until the Executive reaches
the age of sixty-five (65) (or such earlier date on which he is no longer
Disabled), the Company shall continue to pay the Executive sixty percent (60%)
of his Base Salary as in effect at the time of the termination minus the
amount of any disability payments the Executive may receive under any
long-term disability insurance maintained by the Company. Such amount shall be
payable as provided in Section IV.A hereof. Earned but unpaid Base Salary and
earned but unpaid incentive compensation awards will be paid in a lump sum at
the time of such termination. No incentive compensation shall be deemed earned
within the meaning of this Agreement until the Executive is informed in
writing as to the amount of such incentive compensation the Executive is to be
awarded as to a particular period.
-5-
ii. The Company will also continue the benefits and
perquisites described in this Agreement for a period of sixty (60) months
subsequent to any such termination.
iii. In the event of any such termination, all unvested
stock options held by the Executive shall become fully vested on the date of
such termination and shall remain fully exercisable until the applicable
expiration dates contained in the applicable stock option agreements pursuant
to which such stock options were granted.
iv. In the event of any such termination, any restrictions
on any shares of restricted stock issued to the Executive prior to such
termination shall lapse on the date of such termination.
B. During the period the Executive is receiving payments of either
regular compensation or disability insurance described in this Agreement and
as long as he is physically and mentally able to do so without undue burden,
the Executive will furnish information and assistance to the Company as
reasonably requested and from time to time will make himself reasonably
available to the Company to undertake assignments consistent with his prior
position with the Company and his physical and mental health. During the
disability period, the Executive is responsible and reports directly to the
Company's Chief Executive Officer. If the Company fails to make a payment or
provide a benefit required as part of this Agreement, the Executive's
obligation to furnish information and assistance will end.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, the Period of Employment shall end and the Company's obligation to
make payments under this Agreement shall cease as of the date of death, except
for earned but unpaid Base Salary and any earned but unpaid incentive
compensation awards, which will be paid to the Executive's surviving spouse,
estate or personal representative, as applicable, in a lump sum within sixty
(60) days after the date of the Executive's death. The Executive's designated
beneficiary will be entitled to receive the proceeds of any life or other
insurance or other death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites described in this
Agreement for the benefit of Executive's beneficiaries and surviving family
for a period of thirty-six (36) months commencing on the Executive's death.
Any stock
-6-
options held by the Executive shall become fully vested on the date of the
Executive's death and shall remain fully exercisable until the applicable
expiration dates contained in the applicable stock option agreements pursuant
to which such stock options were granted. Any restrictions on any shares of
restricted stock held by the Executive at the time of the Executive's death
shall lapse on the date of the Executive's death.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Without Cause Termination and Constructive Discharge before
January 1, 2000. If the Executive's employment terminates due to either a
Without Cause Termination or a Constructive Discharge, as defined below,
before January 1, 2000 (other than as set forth in B. below), the Company
shall pay the Executive (or his surviving spouse, estate or personal
representative, as applicable) upon such Without Cause Termination or
Constructive Discharge a lump sum amount equal to three hundred percent (300%)
of the sum of (i) his Base Salary as in effect at the time of such termination
(without regard to any reduction thereof in violation of Paragraph A.i. of
Section IV hereof) and (ii) the higher of (A) the highest of the annual
bonuses and/or Incentive Compensation Awards paid or payable to the Executive
with respect to each of the last three years ended on or before such
termination and (B) $500,000 (such higher amount, the "Highest Bonus"). Earned
but unpaid Base Salary and earned but unpaid Incentive Compensation Awards
also will be paid in a lump sum at the time of such termination. The benefits
and perquisites described in this Agreement will be continued for thirty-six
(36) months following such termination. In the event of any such Without Cause
Termination or Constructive Discharge, any unvested stock options held by the
Executive shall become fully vested on the date of such termination, and shall
remain exercisable for the remainder of their terms without regard to such
termination, and any restrictions on any shares of restricted stock held by
the Executive shall lapse on the date of such termination, in each case
notwithstanding anything to the contrary in any applicable stock option or
restricted stock agreements.
B. Certain Constructive Discharges. If the Executive's employment
terminates by reason of a Constructive Discharge due to the termination of
Xxxxx X. Xxxxxxxxx'x employment by the Company or Xx. Xxxxxxxxx for any reason
before January 1, 2002, or a failure of the Company for any reason to appoint
and maintain Xxxxx X. Xxxxxxxxx as Chairman of the Board of Directors and
Executive Committee of the Company for the whole of the
-7-
year 2000 and 2001, the Company shall pay the Executive (or his surviving
spouse, estate or personal representative, as applicable) a lump sum equal to
one hundred percent (100%) of the sum of (i) his Base Salary as in effect at
the time of such termination (without regard to any reduction thereof in
violation of Paragraph A.i. of Section IV hereof) and (ii) the Highest Bonus,
multiplied by the number of full and partial years from the time of
termination through and including December 31, 2001, provided that the
resulting percentage shall not be less than two hundred percent (200%) nor
more than four hundred percent (400%). Earned but unpaid Base Salary and
earned but unpaid Incentive Compensation Awards also will be paid in a lump
sum at the time of such termination. The benefits and perquisites described in
this Agreement will be continued for thirty-six (36) months following such
termination. In the event of any such Constructive Discharge, any unvested
stock options held by the Executive shall become fully vested on the date of
such termination, and shall remain exercisable for the remainder of their
terms without regard to such termination, and any restrictions on any shares
of restricted stock held by the Executive shall lapse on the date of such
termination, in each case notwithstanding anything to the contrary in any
applicable stock option or restricted stock agreements.
C. Without Cause Termination, Constructive Discharge or
Resignation After December 31, 1999. If, after December 31, 1999, the
Executive's employment terminates due to either a Without Cause Termination or
a Constructive Discharge, as defined below (other than as set forth in B
above), the Company shall pay the Executive (or his surviving spouse, estate,
or personal representative, as applicable) a lump sum amount equal to five
hundred percent (500%) of the sum of (i) his Base Salary as in effect at the
time of such termination (without regard to any reduction thereof in violation
of Paragraph A.i. of Section IV hereof) and (ii) the Highest Bonus. If, after
December 31, 1999, the Executive resigns for any reason, the Company shall pay
the Executive (or his surviving spouse, estate or personal representative, as
applicable) a lump sum amount equal to two hundred percent (200%) of the sum
of (i) his Base Salary as in effect at the time of such termination (without
regard to any reduction thereof in violation of Paragraph A.i. of Section IV
hereof) and (ii) the Highest Bonus. Earned but unpaid Base Salary and earned
but unpaid Incentive Compensation Awards also will be paid in a lump sum at
the time of such termination. The benefits and perquisites described in this
Agreement will be continued for thirty-six (36) months following such
termination. In the event of such a Without Cause Termination or Constructive
Discharge, any unvested options held by the Executive shall become fully
vested on the date of
-8-
such termination, and shall remain exercisable for the remainder of their term
without regard to such termination, and any restriction on any shares of
restricted stock held by the Executive shall lapse on the date of such
termination, in each case notwithstanding anything to the contrary in any
applicable stock option or restricted stock agreements. In the event of any
such resignation, any unvested stock options held by the Executive that would
have vested during the thirty-six (36) months following the date of such
resignation shall become fully vested on the date of such resignation and
shall remain exercisable for the remainder of their term without regard to
such resignation, and any restrictions on any shares of restricted stock held
by the Executive that would have lapsed during the thirty-six (36) months
following the date of such resignation shall lapse on the date of such
resignation, in each case notwithstanding anything to the contrary in any
applicable stock option or restricted stock agreements.
D. If the Executive's employment terminates due to a Termination
for Cause or due to a resignation prior to January 1, 2000, earned but unpaid
Base Salary and any earned but unpaid Incentive Compensation Awards will be
paid to the Executive in a lump sum within sixty (60) days of such
termination.
E. For this Agreement, the following terms have the following
meanings:
i. "Termination for Cause" means termination of the
Executive's employment by the Company upon a good faith determination by the
Board of Directors, by written notice to the Executive specifying the event
relied upon for such termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement (including but not
limited to conviction for a felony or perpetration of a common law fraud)
which has resulted or is likely to result in material economic damage to the
Company and which, in any such case, is not cured (if such is capable of being
cured) within thirty (30) days after written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of the
Executive's employment by the Executive due to the termination of Xxxxx X.
Xxxxxxxxx'x employment by the Company or Xx. Xxxxxxxxx for any reason before
January 1, 2001 or a failure of the Company for any reason to appoint and
maintain Xxxxx X. Xxxxxxxxx as Chairman of the Board of Directors and
Executive Committee of the Company for the whole of the year 2000; or a
failure of the Company to fulfill its obligations under this Agreement in any
material respect (including without limitation any reduction of the
Executive's Base Salary, as the same may
-9-
be increased during the Period of Employment, or other compensation); or
failure to appoint or reappoint the Executive to any of the positions required
by Section II hereof; or other material change by the Company in the
functions, duties or responsibilities of the Executive's position (not
contemplated by this Agreement) which would reduce the ranking or level,
dignity, responsibility, importance or scope of such position; or any
relocation of the Executive's employment to a location more than 15 miles from
the city limits of Parsippany, New Jersey. The Executive will provide the
Company a written notice which describes the circumstances being relied on for
the termination with respect to this Agreement within ninety (90) days after
the event giving rise to the notice. The Company will have thirty (30) days
after receipt of such notice to remedy the situation prior to the termination
for Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without
Cause" means termination of the Executive's employment by the Company other
than due to death, disability, or Termination for Cause. Without limiting the
generality of the foregoing, the Executive shall be deemed to have been
terminated Without Cause if the Company provides notice to the Executive
pursuant to Section III A. of this Agreement that the Period of Employment
will end at the expiration of the then-existing Period of Employment.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
fully cooperate with the Company and its affiliates as may be requested in
connection with any claims or legal action in which the Company or any of its
affiliates is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to this Agreement or to the affairs; business; results of
operations; accounting methods, practices and procedures; members; acquisition
candidates; financial condition; clients; customers or other relationships of
the Company or any of its affiliates ("Information") is confidential and is a
unique and valuable asset of the Company or any of its affiliates. Access to
and knowledge of certain of the Information is essential to the performance of
the Executive's duties under this Agreement. The Executive will not during the
Period of Employment or thereafter, except to the extent reasonably necessary
in performance of his duties under this Agreement,
-10-
give to any person, firm, association, corporation, or governmental agency any
Information, except as may be required by law. The Executive will not make use
of the Information for his own purposes or for the benefit of any person or
organization other than the Company or any of its affiliates. The Executive
will also use his best efforts to prevent the disclosure of this Information
by others. All records, memoranda, etc. relating to the business of the
Company or its affiliates, whether made by the Executive or otherwise coming
into his possession, are confidential and will remain the property of the
Company or its affiliates.
C. i. During the Period of Employment and for a twenty-four
(24) month period thereafter (the "Restricted Period"), irrespective of the
cause, manner or time of any termination, the Executive will not use his
status with the Company or any of its affiliates to obtain loans, goods or
services from another organization on terms that would not be available to him
in the absence of his relationship to the Company or any of its affiliates.
ii. During the Restricted Period, the Executive will not
make any statements or perform any acts intended to or which may have the
effect of advancing the interest of any existing or prospective competitors of
the Company or any of its affiliates or in any way injuring the interests of
the Company or any of its affiliates. During the Restricted Period, the
Executive, without prior express written approval by the Board of Directors of
the Company, will not engage in, or directly or indirectly (whether for
compensation or otherwise) own or hold proprietary interest in, manage,
operate, or control, or join or participate in the ownership, management,
operation or control of, or furnish any capital to or be connected in any
manner with, any party which competes in any way or manner with the business
of the Company or any of its affiliates, as such business or businesses may be
conducted from time to time, either as a general or limited partner,
proprietor, common or preferred shareholder, officer, director, agent,
employee, consultant, trustee, affiliate, or otherwise. The Executive
acknowledges that the Company's and its affiliates' businesses are conducted
nationally and internationally and agrees that the provisions in the foregoing
sentence shall operate throughout the United States and the world.
iii. During the Restricted Period, the Executive, without
express prior written approval from the Board of Directors, will not solicit
any members or the then-current clients of the Company or any of its
affiliates for any existing business of the Company or any of its affiliates
or discuss with
-11-
any employee of the Company or any of its affiliates information or operation
of any business intended to compete with the Company or any of its affiliates.
iv. During the Restricted Period, the Executive will not
meddle with the employees or affairs of the Company or any of its affiliates
or solicit or induce any person who is an employee of the Company or any of
its affiliates to terminate any relationship such person may have with the
Company or any of its affiliates, nor shall the Executive during such period
directly or indirectly engage, employ or compensate, or cause or permit any
person with which the Executive may be affiliated, to engage, employ or
compensate, any employee of the Company or any of its affiliates. The
Executive hereby represents and warrants that the Executive has not entered
into any agreement, understanding or arrangement with any employee of the
Company or any of its affiliates pertaining to any business in which the
Executive has participated or plans to participate, or to the employment,
engagement or compensation of any such employee.
v. For the purposes of this Agreement, proprietary interest
means legal or equitable ownership, whether through stock holding or
otherwise, of an equity interest in a business, firm or entity or ownership of
more than 5% of any class of equity interest in a publicly-held company and
the term "affiliate" shall include without limitation all subsidiaries and
licensees of the Company.
D. The Executive hereby acknowledges that damages at law may be an
insufficient remedy to the Company if the Executive violates the terms of this
Agreement and that the Company shall be entitled, upon making the requisite
showing, to preliminary and/or permanent injunctive relief in any court of
competent jurisdiction to restrain the breach of or otherwise to specifically
enforce any of the covenants contained in this Section IX without the
necessity of showing any actual damage or that monetary damages would not
provide an adequate remedy. Such right to an injunction shall be in addition
to, and not in limitation of, any other rights or remedies the Company may
have. Without limiting the generality of the foregoing, neither party shall
oppose any motion the other party may make for any expedited discovery or
hearing in connection with any alleged breach of this Section IX.
E. The period of time during which the provisions of this Section
IX shall be in effect shall be extended by the length of time during which the
Executive is in breach of the terms hereof as determined by any court of
competent jurisdiction on the Company's application for injunctive relief.
-12-
F. The Executive agrees that the restrictions contained in this
Section IX are an essential element of the compensation the Executive is
granted hereunder and but for the Executive's agreement to comply with such
restrictions, the Company would not have entered into this Agreement.
SECTION X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of the Company's incorporation in effect at
that time, or the certificate of incorporation and by-laws of the Company,
whichever affords the greater protection to the Executive. The Executive will
be entitled to any insurance policies the Company may elect to maintain
generally for the benefit of its officers and directors against all costs,
charges and expenses incurred in connection with any action, suit or
proceeding to which he may be made a party by reason of being a director or
officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this
Agreement, the Company shall reimburse the Executive for all costs and
expenses related to the litigation or proceeding, including attorney's fees
and expenses, providing that the litigation or proceeding results in either
settlement requiring the Company to make a payment to the Executive or
judgment in favor of the Executive.
SECTION XI
CHANGE IN CONTROL
A. In the event there is a Change in Control (other than in
connection with the Merger), as defined below, all unvested stock options held
by the Executive shall immediately upon such Change in Control become fully
vested and shall remain exercisable until the applicable expiration dates
contained in the applicable stock option agreements pursuant to which such
stock options were granted, and all restrictions on any shares of restricted
stock held by the Executive shall lapse immediately upon such Change in
Control, in each case whether or not the Executive resigns. The Executive
shall not be entitled to receive any duplicative payments as a result of the
implementation of the provisions of this Section XI.
B. A "Change in Control" shall be deemed to have occurred if (i) a
tender offer shall be made and consummated for
-13-
the ownership of fifty-one percent (51%) or more of the outstanding voting
securities of the Company, (ii) the Company or any subsidiary thereof shall be
merged with or into or consolidated with another corporation and as a result
of such merger or consolidation less than seventy-five percent (75%) of the
outstanding voting securities of the surviving or resulting corporation shall
be owned in the aggregate by the former shareholders of the Company, (iii) the
Company shall sell substantially all of its assets to another corporation
which is not a wholly-owned subsidiary of the Company, (iv) a person, within
the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the
date hereof) of the Securities Exchange Act of 1934, as amended, shall acquire
twenty-five percent (25%) or more of the outstanding voting securities of the
Company (whether directly, indirectly, beneficially or of record) or (v) any
other event shall take place that a majority of the Board of Directors of the
Company, in its sole discretion, shall determine constitutes a "Change in
Control" for the purposes hereof. For purposes hereof, ownership of voting
securities shall take into account and shall include ownership as determined
by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date
hereof) pursuant to the Securities Exchange Act of 1934, as amended.
C. i. Anything in this Agreement or in any other plan, program
or agreement to the contrary notwithstanding and except as set forth below, in
the event that (A) the Executive becomes entitled to any benefits or payments
under Paragraph A., B. or C. of Section VIII hereof and (B) it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section XI C.) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retaining an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section XI C.i., if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that
-14-
the Payments do not exceed 110% of the greatest amount (the "Reduced Amount")
that could be paid to the Executive such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
ii. Subject to the provisions of Section XI C.iii., all
determinations required to be made under this Section XI.C., including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Ernst & Young LLP or such other certified public accounting
firm as may be designated by the Executive and reasonably acceptable to the
Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of a request therefor from the Executive or the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section XI C., shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
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
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section XII C.iii. and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
iii. The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay
-15-
such claim prior to the expiration of the 30-day period following the date on
which the Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim.
(b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company.
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expense (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for 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 limitation on the foregoing provisions
of this Section XI C. the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and xxx for a refund or contest
the claim in any permissible manner, and the 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
shall determine; provided, however, that if the Company directs the Executive
to such claim and xxx for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify
and hold the 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 or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable
-16-
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
iv. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section XI C., the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section XI
C.iii.) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section XI C.iii., a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
SECTION XII
MITIGATION
The Executive shall not be required to mitigate the amount of any
payment provided for hereunder by seeking other employment or otherwise, nor
shall the amount of any such payment be reduced by any compensation earned by
the Executive as the result of employment by another employer after the date
the Executive's employment hereunder terminates.
SECTION XIII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments
under this Agreement all federal, state, city or other taxes that shall be
required pursuant to any law or governmental regulation.
-17-
SECTION XIV
EFFECT OF PRIOR AGREEMENTS
From and after the Closing Date, this Agreement shall supersede
any prior employment agreement between the Company and the Executive hereof,
and subject to the consummation of the Merger, any such prior employment
agreement shall be deemed terminated without any remaining obligations of
either party thereunder. This Agreement shall not affect or operate to reduce
any benefit or compensation inuring to the Executive of a kind elsewhere
provided (other than the Existing Agreement) and not expressly provided in
this Agreement. The Executive agrees to waive any severance payment to which
he may be entitled as a result of the Merger pursuant to Section 3(b) of the
Existing Agreement.
SECTION XV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially
all of its assets to, another corporation which assumes this Agreement and all
obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger or sale of assets the term "the Company" will mean the
other corporation and this Agreement shall continue in full force and effect.
SECTION XVI
MODIFICATION
This Agreement may not be modified or amended except in writing
signed by the parties. No term or condition of this Agreement will be deemed
to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that
which is specifically waived.
SECTION XVII
GOVERNING LAW
This Agreement has been executed and delivered in the State of New
Jersey and its validity, interpretation, performance and enforcement shall be
governed by the internal laws of that state.
-18-
SECTION XVIII
ARBITRATION
A. Any controversy, dispute or claim arising out of or relating to
this Agreement or the breach hereof which cannot be settled by mutual
agreement (other than with respect to the matters covered by Section IX for
which the Company may, but shall not be required to, seek injunctive relief)
shall be finally settled by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state arbitration law)
as follows: Any party who is aggrieved shall deliver a notice to the other
party setting forth the specific points in dispute. Any points remaining in
dispute twenty (20) days after the giving of such notice may be submitted to
arbitration in New York, New York, to Jams/Endispute, before a single
arbitrator appointed in accordance with the arbitration rules of
Jams/Endispute, modified only as herein expressly provided. After the
aforesaid twenty (20) days, either party, upon ten (10) days notice to the
other, may so submit the points in dispute to arbitration. The arbitrator may
enter a default decision against any party who fails to participate in the
arbitration proceedings.
B. The decision of the arbitrator on the points in dispute
will be final, unappealable and binding, and judgment on the award may be
entered in any court having jurisdiction thereof.
C. Except as otherwise provided in this Agreement, the arbitrator
will be authorized to apportion its fees and expenses and the reasonable
attorneys' fees and expenses of any such party as the arbitrator deems
appropriate. In the absence of any such apportionment, the fees and expenses
of the arbitrator will be borne equally by each party, and each party will
bear the fees and expenses of its own attorney.
D. The parties agree that this Section XVIII has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this Section XVIII shall be grounds for dismissal of
any court action commenced by either party with respect to this Agreement,
other than post-arbitration actions seeking to enforce an arbitration award.
In the event that any court determines that this arbitration procedure is not
binding, or otherwise allows any litigation regarding a dispute, claim, or
controversy covered by this Agreement to proceed, the parties hereto hereby
waive any and all right to a trial by jury in or with respect to such
litigation.
-19-
E. The parties shall keep confidential, and shall not disclose to
any person, except as may be required by law, the existence of any controversy
hereunder, the referral of any such controversy to arbitration or the status
or resolution thereof.
SECTION XIX
SURVIVAL
Sections V, VI, VII, VIII, IX, X, XI, XII, XVIII and XX shall
continue in full force in accordance with their respective terms
notwithstanding any termination of the Period of Employment.
SECTION XX
SEPARABILITY
All provisions of this Agreement are intended to be severable. In
the event any provision or restriction contained herein is held to be invalid
or unenforceable in any respect, in whole or in part, such finding shall in no
way affect the validity or enforceability of any other provision of this
Agreement. The parties hereto further agree that any such invalid or
unenforceable provision shall be deemed modified so that it shall be enforced
to the greatest extent permissible under law, and to the extent that any court
of competent jurisdiction determines any restriction herein to be unreasonable
in any respect, such court may limit this Agreement to render it reasonable in
the light of the circumstances in which it was entered into and specifically
enforce this Agreement as limited.
-20-
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
HFS INCORPORATED
By:
----------------------------
Xxxxx X. Xxxxxxxxx
XXX INTERNATIONAL, INC.
By:
----------------------------
E. Xxxx Xxxxxxx
---------------------------
Xxxxx X. Xxxxxxx
-21-
