EXHIBIT 10.2
FORM OF AGREEMENT
AGREEMENT
This Agreement dated as of May 27, 1997 by and between CUC
International Inc., a Delaware corporation (the "Company"), and Xxxxxxxxxxx X.
XxXxxx ("Executive").
WHEREAS, the Executive and the Company are parties to a certain
Agreement dated as of May 15, 1996 (the "Existing Agreement"); and
WHEREAS, subject to the consummation of the transactions contemplated
by the Agreement and Plan of Merger between the Company and HFS Incorporated,
a Delaware corporation (the "Merger Partner") dated as of May 27, 1997 (the
"Merger Agreement"), whereby the Merger Partner will be merged with and into
the Company with the Company being the surviving corporation (the "Merger"),
the Company 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 and the
Company 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, the Executive agrees to serve as
Executive Vice President of the Company and President of the CUC software
division of the Company (regardless of the name by which such division is
designated) and to be responsible
for the typical management responsibilities expected of an officer holding
such position, reporting directly to the Chief Executive Officer 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 or
agreed 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:
I. Serving, with the prior approval of the Chairman of th Board or
the Chief Executive Officer of the Company, as a director or member of a
committee or organization involving no actual or potential conflict of
interest with the Company;
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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
The Company hereby acknowledges that the Merger will cause a "Change
of Control" for purposes of the Existing Agreement and for purposes of the
Company's 1996 Executive Retirement Plan, with the result that subject to the
limitation set forth in Section XI B. below, (i) all stock options held by the
Executive will become fully vested and any restrictions on any shares of
restricted stock held by the Executive will lapse, (ii) 75% of the Executive's
"Target Value" under the 1996 Executive Retirement Plan will become payable to
the Executive in cash, and (iii) the Executive will have the right to resign
his employment at any time and receive certain severance benefits. The Company
shall pay the amount due under the 1996 Executive Retirement Plan upon
consummation of the Merger by wire transfer of immediately available funds to
one or more accounts designated by the Executive. The Company also
acknowledges that, upon consummation of the Merger, grounds for a
"Constructive Discharge" will have occurred under the Existing Agreement.
Notwithstanding the foregoing (and without waiving the vesting and payments
under clauses (i) and (ii)), the Executive hereby waives his right to claim
Constructive Discharge for purposes of the Existing Agreement as a result of
the consummation of the Merger or any event or circumstance contemplated
thereby and all of his rights to receive severance benefits pursuant to the
Existing Agreement in return for the rights provided in this Agreement.
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
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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 $650,000 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.
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 $650,000 (each such bonus, an "Incentive Compensation Award").
III. LONG-TERM INCENTIVE AWARDS
As of the Closing Date, the Company will grant the Executive
Non-Qualified Stock Options (the "Initial Options") with respect to 1.8
million shares of common stock of the Company at fair market value on the
grant date, vesting in four equal installments on each of the first four
anniversaries 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
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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.
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
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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.
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
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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 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 Executive's death shall lapse on the date of the
Executive's death.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Without Cause Termination; Constructive Discharge; Resignation. If
the Executive's employment terminates due to either a Without Cause
Termination or a Constructive Discharge, as defined below, or if the Executive
resigns at any time for any reason, the Company shall immediately pay the
Executive (or his surviving spouse, estate or personal representative, as
applicable) upon such Without Cause Termination, Constructive Discharge or
resignation in a lump sum an amount equal to five hundred percent (500%) of
the sum of (i) his Base Salary as in effect at the time of such resignation
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 each of the
last three years ended on or before the date of the Without Cause Termination
or Constructive Discharge, and (B) $520,000 (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, Constructive Discharge or resignation,
any unvested stock options held by the Executive (including without limitation
the Initial Options) shall become fully vested on the date of such
termination, and shall remain exercisable for the remainder of their term
without regard to such termination, and any restrictions on any shares of
restricted stock held by the Executive shall lapse on the
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date of such termination, in each case notwithstanding anything to the
contrary in any applicable stock option or restricted stock agreements.
B. For Cause. If the Executive's employment terminates due to a
Termination for Cause, earned but unpaid Base Salary and any earned but unpaid
incentive compensation will be paid to the Executive in a lump sum within
sixty (60) days of such termination.
C. Termination Generally. Upon the termination of the Executive's
employment for any reason, then notwithstanding Section XI B. or any other
provision hereof, any unvested stock options held by the Executive that would
have vested during the thirty-six (36) months following the date of such
termination (including without limitation the Initial Options) shall be deemed
fully vested on the date of such termination, and shall remain exercisable for
the remainder of their term without regard to such termination. In addition,
upon the termination of the Executive's employment at any time for any reason
then notwithstanding any provision hereof but subject to Section XI B. hereof:
(i) all unvested stock options held by the Executive that were granted before
the Closing Date 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; (ii) any restrictions on any shares of restricted stock issued
to the Executive prior to the Closing Date shall lapse on the date of such
termination; and (iii) any amounts that became payable to the Executive upon
the Merger pursuant to Section 6.1 of the Company's 1996 Executive Retirement
Plan (determined without regard to Section 6.2 thereof) but have not
previously been paid shall be paid in full.
D. Definitions. 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.
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II. "Constructive Discharge" means termination of the Executive's
employment by the Executive due to a failure of the Company for any reason 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 be increased during the Period of Employment, or other
compensation); or failure to appoint or reappoint the Executive to 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 which would reduce the ranking or level, dignity, responsibility,
importance or scope of such position; or any relocation of the Executive to a
place of employment that is more than 15 miles from the city limits of
Stamford, Connecticut. 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
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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, 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.
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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 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.
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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.
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 that there is a Change in Control, as defined below,
other than in connection with the Merger, 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
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receive any duplicative payments as a result of the implementation of the
provisions of this Section XI.
B. i. In the event that the accelerated vesting of the Executive's
stock options and restricted stock and/or the payment of benefits to the
Executive pursuant to the terms of the Company's 1996 Executive Retirement
Plan, in each case upon the consummation of the Merger and/or any payments or
benefits that become due under this Agreement as a result of the Executive's
voluntary resignation before the six-month anniversary of the Closing Date
(the "Merger Payments") would, in the opinion of independent tax counsel
selected by the Company and reasonably acceptable to the Executive ("Tax
Counsel"), be subject to the excise tax (the "Excise Tax") imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (in whole
or in part), as determined as provided below, the Merger Payments shall be
reduced (but not below zero) until no portion of the Merger Payments would be
subject to the Excise Tax. For purposes of this limitation, (a) no portion of
the Merger Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing shall be taken into account, (b) only the
portion of the Merger Payments which in the opinion of Tax Counsel constitute
a "parachute payment" within the meaning of Section 280G(b)(2) of the Code
shall be taken into account, (c) the Merger Payments shall be reduced only to
the extent necessary so that the Merger Payments would not be subject to the
Excise Tax, in the opinion of Tax Counsel, and (d) the value of any noncash
benefit or any deferred payment or benefit included in such Merger Payments
shall be determined by the Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. If any reduction in Merger Payments
is necessary to satisfy this Paragraph, the Executive shall be entitled, at
any time by written notice to the Company, to reduce the amount of any Merger
Payment otherwise payable to him (including, without limitation by waiving, in
whole or in part, the accelerated vesting under this Agreement of options
previously granted Executive), and to select from among the Merger Payments
those to be so reduced in order to satisfy the limitations of this Paragraph,
and the Company shall reduce the amount of such Merger Payments accordingly.
Any options the vesting of which would have otherwise accelerated but for the
provisions of this Paragraph shall continue to vest in accordance with their
respective terms, and shall, upon such vesting, remain exercisable until the
applicable expiration dates contained in the applicable stock option
agreements pursuant to which such stock options were granted, whether or not
the Executive's employment is terminated.
ii. If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal
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Revenue Service proceeding that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Paragraph B., any
Merger Payments paid to the Executive or for his benefit exceeded the
limitation contained in Paragraph B. hereof, then the Executive shall pay to
the Company, within 60 days of receipt of notice of such final determination
or opinion, an amount equal to the sum of (a) the excess of the Merger
Payments paid to him or for his benefit over the maximum Merger Payments that
should have been paid to or for his benefit taking into account the
limitations contained in this Paragraph B. and (b) interest on the amount set
forth in clause (a) of this sentence at the applicable federal rate (as
defined in Section 1274(d) of the Code) from the date of his receipt of such
excess until the date of such payment; provided, however, that (x) he shall
not be required to make any payment to the Company pursuant to this Paragraph
B.ii., (1) if such final determination requires the payment by him of an
Excise Tax by reason of any Merger Payment or portion thereof or (2) in the
case of the opinion of Tax Counsel, until the expiration of the application
statute of limitations or a final determination of a court or an Internal
Revenue Service proceeding that no Excise Tax is due and (y) he shall only be
required to make a payment to the Company pursuant to this Paragraph B.ii. to
the extent such payment is deductible (or excludable from income) for federal
income tax purposes.
iii. If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying
the terms of Paragraph B.i. hereof, any Merger Payments paid to him or for his
benefit were in an amount less than the maximum Merger Payments which could be
payable to him without such payments being subject to the Excise Tax, then the
Company shall pay to him, within ninety days of receipt of notice of such
final determination or opinion, an amount equal to the sum of (a) the excess,
if any, of the payments that should have been paid to him or for his benefit
over the payments paid to or for his benefit and (b) interest on the amount
set forth in clause (a) of this sentence at the applicable federal rate (as
defined in Section 1274(d) of the Code) from the date of his non-receipt of
such excess until the date of such payment.
C. A "Change in Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for 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
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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.
D. 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 after taking into account any reduction in the Merger Payments
required pursuant to Paragraph B. above, 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, including without limitation the Merger
Payments as reduced (if required) pursuant to Paragraph B. above, but
determined without regard to any additional payments required under this
Section XI D.) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of 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, are 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 retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section XI D.i., if it shall
be determined that the Executive is entitled to a Gross-Up Payment, but that
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
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Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
II. Subject to the provisions of Section XI D.iii., all
determinations required to be made under this Section XI D., 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 of 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 D., 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 XI D.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 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
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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
expenses (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 D.iii., 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 pay 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
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
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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 D., 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 D.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
D.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.
V. Except as specifically provided in Paragraph B. above or this
Paragraph D., no provision in any plan, program or agreement (including
without limitation the Company's 1996 Executive Retirement Plan and any and
all stock option and restricted stock plans and agreements) that may require
the Executive to forego or defer any payments or other benefits as a result of
their possible treatment as "excess parachute payments" under Section 280G of
the Code shall have any application to any payments or other benefits provided
pursuant to this Agreement.
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.
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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.
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 in the Existing Agreement) and not expressly provided in this 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.
Without limiting the generality of the foregoing, except where the context
otherwise requires, the term "Company" shall refer to the Company both before
and after the Merger.
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.
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SECTION XVII
LIFE INSURANCE POLICIES
A. The Executive owns insurance policies nos. 3023130, 2995020, and
2960304 with Guardian Life Insurance Company of America ("Guardian"), policies
nos. 1046439, 1208351 and 1074717 with Security Mutual Life Insurance Company
of New York ("Security") and policy no. 2636033 with Canada Life ("Canada")
(the Guardian, Security and Canada policies are referred to herein as the
"Policies"). The Policies provide a death benefit equal to the cash surrender
value of the Policies. The Executive has the right to name a beneficiary for
all of the death benefits, subject to the rights of the Company under the
Prior Life Insurance Agreements described below in Paragraph F. of this
Section XVII. As part of the compensation paid by the Company to the Executive
pursuant to this Agreement, the Company has advanced certain premium payments
on the Policies through the date hereof.
B. In consideration of the services performed by the Executive
pursuant to this Agreement, the Company agrees to advance annual premium
payments for the Policies, in the aggregate, in the amount of approximately
$265,000 or such other annual amount as may be agreed to in writing between
the Company and the Executive per year (the "Required Premiums") through the
calendar year in which the Executive attains age sixty (60) regardless of
whether the Executive is employed by the Company at the time the premiums are
paid; provided, however, that the Required Premiums made by the Company shall
cease in the event the Executive breaches any of the Covenants contained in
Section IX hereof (the "Covenants").
C. In consideration of the Required Premiums to be advanced annually
by the Company pursuant to this Section XVII, whether or not the Executive is
employed by the Company pursuant to this Agreement, the Executive agrees not
to breach the Covenants.
D. In further consideration of the premiums to be advanced annually
by the Company, the Executive further agrees that between the date hereof and
until the date the Executive attains age sixty (60), the Executive may not
withdraw any amount (either as a Policy loan or a withdrawal of cash surrender
value) from the Policies.
E. The Policies have been transferred by the Executive to the escrow
agent agreed to by the Executive and the Company (the "Escrow Agent") pursuant
to the escrow agreement dated as of February 1, 1996 between the Company, the
Executive and the
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Escrow Agent annexed hereto as Exhibit A (the "Escrow Agreement"). In the
event the Executive violates the Covenants prior to the Executive attaining
age sixty (60), the Executive shall forfeit any interest in the Policies, and
the Escrow Agent shall transfer the Policies to the Company, subject to the
provisions of the Escrow Agreement. The Executive has executed an assignment
agreement ("Assignment Agreement"), annexed hereto as Exhibit B, to reflect
the obligation of the Executive to transfer the Policies to the Company in
such event, and the Assignment Agreement shall be held in escrow by the Escrow
Agent. Upon the Executive having attained age sixty (60) without having
violated any of the Covenants, the Escrow Agent shall return the Policies to
the Executive, and the Executive shall hold all right, title and interest in
and to the Policies, without regard to the terms of the Covenants, but subject
to the New Collateral Assignments described in Paragraph F of this Section
XVII below.
F. Pursuant to collateral assignment agreements dated December 13,
1988 and August 13, 1991, the Executive has assigned to the Company an
interest in the Policies issued by Security (other than policy no. 1208351)
equal to the premiums advanced by the Company. Pursuant to collateral
assignment agreements dated June 2, 1988, the Executive has assigned to the
Company an interest in the Policies issued by Guardian equal to the premiums
advanced by the Company. These agreements are referred to herein collectively
as the "Prior Life Insurance Agreements." New collateral assignments have been
entered into between Guardian, Security and Canada (respectively), the Company
and the Executive, copies of which are annexed hereto as Exhibit C ("New
Collateral Assignments"). Each provides that the Company shall have an
interest in such respective Policies equal to the premiums advanced by the
Company. The New Collateral Assignments shall supersede the Prior Life
Insurance Agreements.
G. During the term of this Agreement and further provided that the
Executive does not breach the terms of the Covenants before his attainment of
age sixty (60), in the event that the Company fails to make Required Premium
payments for the Policies for any calendar year by December 31st of such year
(the "Default Date"), the Company's right under any or all of the New
Collateral Assignments to be repaid from the cash surrender value of the
Policies, in respect of the premiums advanced by the Company to the Executive,
shall be reduced by the shortfall (unless otherwise subsequently advanced by
the Company) with interest at the rate of seven percent (7%) per annum
(without regard to which Policy there is a failure to pay). Such interest
shall be calculated from the Default Date to the earlier of the (a) date the
Company advances Required
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Premiums with respect which there is a shortfall and certifies to the
Executive that such payment is being made to make up for the shortfall, or (b)
date of withdrawal of premiums advanced by the Company pursuant to the New
Collateral Assignment. For purposes of the preceding sentence, the Executive
may request a reduction from any Policy of the premiums to be repaid to the
Company pursuant to the New Collateral Assignments.
H. In the event the Executive breaches any of the Covenants after
attaining age sixty (60), the Company may seek an injunction in a court of
competent jurisdiction barring the Executive from breaching such Covenants.
SECTION XVIII
GOVERNING LAW
This Agreement has been executed and delivered in the State of
Connecticut and its validity, interpretation, performance and enforcement
shall be governed by the internal laws of that state without giving effect to
the conflicts of laws provisions thereof.
SECTION XIX
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
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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 XIX has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this Section XIX 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.
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 XX
SURVIVAL
Sections V, VI, VII, VIII, IX, X, XI, XII, XVII, XVIII, XIX and XXI
shall continue in full force in accordance with their respective terms
notwithstanding any termination of the Period of Employment.
SECTION XXI
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
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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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
CUC INTERNATIONAL INC.
By:
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Xxxxxx X. Xxxxxx
----------------------------
Xxxxxxxxxxx X. XxXxxx
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