Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
This Agreement ("Agreement") dated this __ day of April, 1999 between
Choice Hotels International, Inc. ("Employer"), a Delaware corporation with
principal offices at 00000 Xxxxxxxx Xxxx, Xxxxxx Xxxxxx, Xxxxxxxx 00000, and
Xxxxxx X. Xxxxxxx ("Employee"), sets forth the terms and conditions governing
the employment relationship between Employee and Employer.
1. Employment. During the term of this Agreement, as hereinafter
----------
defined, Employer hereby employs Employee as Executive Vice President, Franchise
Operations. Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth and agrees to faithfully and to the best of his
ability perform such duties as may be from time to time assigned by Employer's
Board of Directors and Chief Executive Officer, such duties to be rendered at
the principal office of Employer, subject to reasonable travel. Employee also
agrees to perform his duties in accordance with policies established by
Employer's Board of Directors, which may be changed from time to time.
2. Term. Subject to the provisions for termination hereinafter provided,
----
the term of this Agreement shall begin on the first day that the Employee is
entered into the Employer's payroll system ("Effective Date") and shall
terminate five (5) years thereafter (the "Termination Date"). The Termination
Date shall be automatically extended for successive one-year terms unless either
party gives written notice no less than nine months prior to the Termination
Date that it elects not to extend the Termination Date
3. Compensation. For all services rendered by Employee under this
------------
Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of Three Hundred Twenty-Five Thousand
------
Dollars ($325,000) per annum payable in equal bi-weekly installments.
Such base salary shall commence on the Effective Date. Such salary
shall be reviewed by the Compensation Committee of the Board of
Directors of Employer on the next annual review of officers and each
annual review thereafter and may be increased at the discretion of
Employer.
(b) Incentive Bonus. Employee shall have the opportunity to earn up
---------------
to a maximum of Fifty-Five Percent (55%) per annum of the base salary
set forth in subparagraph 3(a) above in Employer's bonus plans as
adopted from time to time by Employer's Board of Directors. For the
Employer's 1999 fiscal year, the Employee's bonus shall be calculated
on a pro rata basis from the Effective Date. In addition, to
compensate Employee for the loss of his bonus at XxXxxxxx Inns &
Suites, the Employer shall pay Employee an amount equal to 50% of
Employee's base salary earned during fiscal year 1999 while employed
at LaQuinta. The payment referred to in the preceding sentence shall
be paid at the same time that Employer's fiscal year 1999 bonuses are
paid.
(c) Restricted Stock. At the Effective Date, Employer shall issue to
----------------
Employee
restricted Choice Hotels common stock ("Common Stock") in an amount
equal to $400,000 divided by the average of the high and low trading
price of the Common Stock on the Effective Date (or the next trading
day if there is no trading on the Effective Date) (the "Average
Trading Price"). The restrictions on such shares shall lapse upon
vesting, which shall occur in five equal annual installments beginning
one year from the Effective Date.
(d) Automobile. Employer shall provide Employee with an allowance for
----------
automobile expenses of $850 per month, subject to withholding tax,
beginning on the Effective Date.
(e) Stock Options. Employee shall be eligible to receive options
-------------
under the Choice Hotels International, Inc. Long Term Incentive Plan
("LTIP"), or similar plan, to purchase Common Stock in accordance with
the policy of the Choice Hotels Board as in effect from time to time.
At the February 2000 Compensation Committee meeting, Employee shall be
eligible to receive a pro rata award based on the number of days of
Employee's employment in fiscal year 1999. Such pro rata award shall
be calculated on the Employer's Stock Option Guidelines, subject to
the approval of the Compensation Committee. Additionally, the
Employee shall be granted, as of the Effective Date, options to
purchase 110,000 shares of Common Stock. A number of the options
shall be incentive stock options granted under the LTIP, which number
shall be the maximum number permitted under the LTIP and Section
422(d) of the Internal Revenue Code of 1986, as amended, but in no
event more than 25% of the total number of options granted pursuant to
this Section 3(f). The remainder of the options shall be nonqualified
stock options. The options shall be exercisable at an amount per share
equal to the Average Trading Price and shall vest in five equal annual
installments beginning one year from the Effective Date.
(f) SERP. At the Commencement Date, Employee shall participate in the
----
Choice Hotels International, Inc. Supplemental Executive Retirement
Plan ("SERP").
(g) Other Benefits. Employee shall, when eligible, be entitled to
--------------
participate in all other fringe benefits generally accorded the most
senior executive officers of Employer as are in effect from time to
time on the same basis as such other senior executive officers.
(h) Relocation Expenses. Employee shall be entitled to all benefits
--------------------
afforded officers under the Relocation Policy of Employer, except that
in lieu of a home repurchase of Employee's principal residence, Choice
shall pay Employee a housing subsidy in recognition of the higher cost
of living in the Washington, D.C. metropolitan area in the amount of
$100,000, payable 50% upon the Effective Date and 50% upon the one
year anniversary of the Effective Date.
4. Extent of Services. Employee shall devote his full professional
------------------
time, attention,
2
and energies to the business of Employer, and shall not during the term of this
Agreement be engaged in any other business activity whether or not such business
activity is pursued for gain, profit, or other pecuniary advantage; but the
foregoing shall not be construed as preventing Employee from investing his
assets in (i) the securities of public companies, or (ii) the securities of
private companies or limited partnerships outside the lodging industry, if such
holdings are passive investments of one percent or less of outstanding
securities and Employee does not hold positions of officer, employee or general
partner. Employee shall be permitted to serve as a director of companies outside
of the lodging industry so long as such service does not inhibit his performance
of services to the Employer. Employee shall not be permitted to serve as a
director of any company within the lodging industry unless (i) the Corporate
Compliance officer of the Employer has determined that there is no conflict of
interest and (ii) such service does not inhibit his performance of services to
the Employer. Employee warrants and represents that he has no contracts or
obligations to others which would materially inhibit the performance of his
services under this Agreement.
5. Disclosure and Use of Confidential Information. Employee recognizes
----------------------------------------------
and acknowledges that information about Employer's and affiliates' present and
prospective clients, franchises, management contracts, acquisitions and
personnel, as they may exist from time to time, and to the extent it has not
been otherwise disclosed, is a valuable, special and unique asset of Employer's
business ("Confidential Information"). Throughout the term of this Agreement
and for a period of two (2) years after its termination or expiration for
whatever cause or reason except as required by applicable law, Employee shall
not directly or indirectly, or cause others to, make use of or disclose to
others any Confidential Information. During the term of this Agreement and for
a period of two years thereafter, Employee agrees not to solicit for employment
or contract for services with, directly or indirectly, on his behalf or on
behalf of any person or entity, other than on behalf of Employer, any person
employed by Employer, or its subsidiaries or affiliates during such period,
unless Employer consents in writing. In the event of an actual or threatened
breach by Employee of the provisions of this paragraph, Employer shall be
entitled to injunctive relief restraining Employee from committing such breach
or threatened breach. Nothing herein stated shall be construed as preventing
Employer from pursuing any other remedies available to Employer for such breach
or threatened breach, including the recovery of damages from Employee.
"Affiliate" as used in this Agreement means a person or entity that is directly
or through one or more intermediates controlling, controlled by or under common
control with another person or entity.
6. Notices. Any notice, request or demand required or permitted to be
-------
given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or, if sent by certified or registered mail or
overnight courier service to his residence in the case of Employee, or to its
principal office in the case of the Employer, return receipt requested. Such
notice shall be deemed given when delivered if personally delivered or when
actually received if sent certified or registered mail or overnight courier.
7. Elective Positions; Constructive Termination.
--------------------------------------------
(a) Nothing contained in this Agreement is intended to nor shall be
construed to
3
abrogate, limit or affect the powers, rights and privileges of the Board of
Directors or stockholders to remove Employee from the positions set forth in
Section 1, with or without Cause (as defined in Section 10 below), during the
term of this Agreement or to elect someone other than Employee to those
positions, as provided by law and the By-Laws of Employer.
(b) If Employee is Constructively Terminated (as defined in Section 7(c)
below), it is expressly understood and agreed that Employee's rights under this
Agreement shall in no way be prejudiced, and Employee shall be entitled to
receive all forms of compensation referred to in Section 3 above, including
bonuses (calculated based only on the actual payout on the EPS portion of the
bonus as all Choice officers receive in a given year), but except ungranted
stock options (but including the continued vesting of previously granted
restricted stock and stock options). Employee upon removal shall not be
required to mitigate damages but nevertheless shall be entitled to pursue other
employment, and Employer shall be entitled to receive as offset and thereby
reduce its payment, the amount received by Employee from any other active
employment. As a condition to Employee receiving his compensation from
Employer, Employee agrees to permit verification of his employment records and
Federal income tax returns by an independent attorney or accountant, selected by
Employer but reasonably acceptable to Employee, who agrees to preserve the
confidentiality of the information disclosed by Employee except to the extent
required to permit Employer to verify the amount received by Employee from other
active employment. Employer shall receive credit for unemployment insurance
benefits, social security insurance or like amounts actually received by
Employee.
(c) For purposes of Sections 7 and 11, "Constructively Terminated" shall
mean (i) removal or termination of Employee other than in accordance with
Section 10, (ii) a decrease in Employee's compensation or benefits (unless a
similar decrease is imposed on all senior executive oficers), (iii) a
significant reduction in the scope of Employee's authority, position, duties or
responsibilities, (iv) a significant change in Choice's annual bonus program
which adversely affects Employee, or (v) any other material breach of this
Agreement by Employer provided Employer shall be given fourteen days advance
written notice of such claim of material breach, which written notice shall
specify in reasonable detail the grounds for such claim of material breach.
Except in the case of bad faith, Employer shall have an opportunity to cure the
basis for Constructive Termination during the fourteen day period after written
notice.
8. Waiver of Breach. The waiver of either party of a breach of any
----------------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9. Assignment. The rights and obligations of Employer under this
----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. The obligations of Employee hereunder may not be
assigned or delegated.
10. Termination of Agreement. This Agreement shall terminate upon the
------------------------
following events and conditions:
(a) Upon expiration of its term;
4
(b) For Cause, which means gross negligence, willful misconduct, willful
nonfeasance, deliberate and continued refusal to carry out duties and
instructions of the Employer's Board of Directors and Chief Executive
Officer consistent with the position, material dishonesty, a violation or a
willful breach of this Agreement or conviction of a felony involving moral
turpitude, fraud or misappropriation of corporate funds. Employee shall be
entitled to fourteen (14) days advance written notice of termination,
except where the basis for termination constitutes wilful conduct on the
part of Employee involving dishonesty or bad faith, in which case the
termination shall be effective upon the sending of notice. Such written
notice shall specify in reasonable detail the grounds for Cause and
Employee shall have an opportunity to contest to the Board of Directors or
cure the basis for termination during the fourteen day period after written
notice.
(c) Subject to state and federal laws, if Employee is unable to perform
the essential functions of the services described herein, after reasonable
accommodation, for more than 180 days (whether or not consecutive) in any
period of 365 consecutive days, Employer shall have the right to terminate
this Agreement by written notice to Employee. In the event of such
termination, all non-vested stock option and other non-vested obligations
of Employer to Employee pursuant to this Agreement shall terminate.
(d) In the event of Employee's death during the term of this Agreement,
the Agreement shall terminate as of the date thereof.
(e) Upon voluntary resignation of Employee not due to Constructive
Termination, so long as Employee has given Employer thirty days prior
written notice of such resignation.
11. Severance.
---------
(a) If, within twelve months after a Change in Control, as defined in
Section 11(b), the Employer terminates or Constructively Terminates
Employee's employment other than in accordance with Section 10, the amount
of Employee's severance pay will be 200% of his base salary at the rate in
effect at the time of his termination or Constructive Termination, plus
200% of the amount of any full year bonus awarded to Employee in the prior
year (or the maximum target bonus if no bonus was awarded in the prior
year). If Employee's employment is terminated subject to this paragraph,
the Employer will provide the Employee and his family health insurance
coverage, including, if applicable, COBRA reimbursement, and will provide
Employee disability insurance coverage under the applicable Employer plans
for a period of 12 months following termination or until Employee starts
other full time employment, whichever is earlier.
(b) A Change in Control of the Employer shall occur upon the happening of
the earliest to occur of the following:
1. Any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (other than (i) the
Employer,
5
(ii) any trustee or other fiduciary holding securities under an
employee benefit plan of the Employer, (iii) any corporations owned,
directly or indirectly, by the stockholders of the Employer in
substantially the same proportions as their ownership of stock, (iv)
Xxxxxxx Xxxxxx, his wife, their lineal descendants and their spouses (so
long as they remain spouses) and the estate of any of the foregoing
persons, and any partnership, trust, corporation or other entity to the
extent shares of common stock (or their equivalent) are considered to be
beneficially owned by any of the persons or estates referred to in the
foregoing provisions of this subsection 11(b) or any transferee thereof, or
(v) the Baron Entities, unless such entities, in the aggregate,
beneficially own more than 19,715,000 shares of the Employer's common
stock) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Employer
representing 33% or more of the combined voting power of the Employer's
then outstanding voting securities;
2. Individuals constituting the Board on the Effective Date and the
successors of such individuals ("Continuing Directors") cease to constitute
a majority of the Board. For this purpose, a director shall be a successor
if and only if he or she was nominated by a Board (or a Nominating
Committee thereof) on which individuals constituting the Board on the
Effective Date and their successors (determined by prior application of
this sentence) constituted a majority.
3. The stockholders of the Employer approve a plan of merger or
consolidation ("Combination") with any other corporation or legal person,
other than a Combination which would result in stockholders of the Employer
immediately prior to the Combination owning, immediately thereafter, more
than sixty-five percent (65%) of the combined voting power of either the
surviving entity or the entity owning directly or indirectly all of the
common stock, or its equivalent, of the surviving entity; provided,
however, that if stockholder approval is not required for such Combination,
the Change in Control shall occur upon the consummation of such
Combination.
4. The stockholders of the Employer approve a plan of complete
liquidation of the Employer or an agreement for the sale or disposition by
the Employer of all or substantially all of the Employer's stock and/or
assets, or accept a tender offer for substantially all of the Employer's
stock (or any transaction having a similar effect); provided, however, that
if stockholder approval is not required for such transaction, the Change in
Control shall occur upon consummation of such transaction.
(c) For purposes of Section 11(b), Baron Entities shall mean Baron Capital
Group, Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund and
Xxxxxx Xxxxx.
12. Legal Fees. Employer shall reimburse the Employee for all reasonable
-----------
attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
6
13. Registration Rights. The Employer shall use its reasonable best
-------------------
efforts to register on Form S-8 the nonqualified options issued pursuant to
Section 3(g) of this Agreement. All costs in connection with such registration
shall be borne by the Employer.
14. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Maryland, and any disputes arising out of or relating to this Agreement
shall be brought and heard in any court of competent jurisdiction in the State
of Maryland.
15. Excise Taxes.
------------
(a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution to the Employee or for the
Employee's benefit (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (the "Payment") would be
subject to the excise tax imposed by section 4999 of the Internal Revenue Code
(the "Excise Tax"), then the Employee shall be entitled to receive from Choice
an additional payment (the "Gross-Up Payment") in an amount such that the net
amount of the Payment and the Gross-Up Payment retained by the Employee after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be equal to the
Payment;
(b) All determinations required to be made under this Section,
including whether and when the Gross-Up Payment is required and the amount of
such Gross-Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by Accountants which Choice shall request provide
the Employee and Choice with detailed supporting calculations with respect to
such Gross-Up Payment at the time the Employee is entitled to receive the
Payment. For the purposes of this Section, the "Accountants" shall mean
Choice's independent certified public accountants. All fees and expenses of the
Accountants shall be borne solely by Choice. For the purposes of determining
whether any of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, such Payments will be treated as "parachute payments" within
the meaning of section 280G of the Code, and all "parachute payments" in excess
of the "base amount" (as defined under section 280G(b)(3) of the Code) shall be
treated as subject to the excise Tax, unless and except to the extent that in
the opinion of the Accountants such Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4) of the
Code) in excess of the "base amount," or such "parachute payments" are otherwise
not subject to such Excise Tax; for purposes of determining the amount of the
Gross-Up Payment the Employee shall be deemed to pay Federal income taxes at the
highest applicable marginal rate of Federal income taxation for the calendar
year in which
7
the Gross-Up Payment is to be made and to pay any applicable state and local
income taxes at the highest applicable marginal rate of taxation for the
calendar year in which the Gross-Up Payment is to be made, net of the maximum
reduction in Federal income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of the Employee's adjusted gross
income); and to have otherwise allowable deductions for Federal, state and local
income tax purposes at least equal to those disallowed because of the inclusion
of the Gross-Up Payment in the Employee's adjusted gross income. Any Gross-Up
Payment with respect to any Payment shall be paid by Choice at the time the
Employee is entitled to receive the Payment. Any determination by the
Accountants shall be binding upon Choice and the Employee. As a result of
uncertainty in the application of section 4999 of the Code at the time of the
initial determination by the Accountants hereunder, it is possible that the
Gross-Up Payment made will have been an amount less than Choice should have paid
pursuant to this Section (the "Underpayment"). In the event that Choice exhausts
its remedies and the Employee is required to make a payment of any Excise Tax,
the Underpayment shall be promptly paid by Choice to or for the Employee's
benefit.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
By:
________________________________
Xxxxxxx X. XxXxxxxx
Senior Vice President
Employee:
-----------------------------------
Xxxxxx X. Xxxxxxx
8
