EXHIBIT 10.4
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SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
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This Agreement ("Agreement") dated this 13th 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
Xxxx Xxxxx ("Employee"), amends and restates that employment agreement dated
April 13, 1998 and sets forth the terms and conditions governing the employment
relationship between Employee and Employer.
1. Employment. During the term of this Agreement, as hereinafter
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defined, Employer hereby employs Employee as Senior Vice President, Marketing.
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,
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the term of this Agreement shall begin on May 18, 1998 ("Effective Date") and
shall terminate five (5) years thereafter (the "Termination Date"). The
Termination Date shall automatically be 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
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Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of Two Hundred Seventy-Five Thousand
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Dollars ($275,000) per annum payable in equal bi-weekly installments.
Such salary shall be reviewed by the Compensation Committee of the
Board of Directors of Employer at the next annual review of officers
following the Effective Date and may be increased at the discretion of
Employer.
(b) Incentive Bonus. Employee shall have the opportunity to earn up
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to a maximum of Fifty Percent (50%) 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 calendar year
1998, Employee shall be guaranteed a bonus of $137,500, payable in
February, 1999.
(c) Restricted Stock. On the Effective Date, Employer shall issue to
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Employee shares of restricted Choice Hotels common stock ("Common
Stock") equal in number to the product of $300,000 divided by the mean
of the high and the low market price of the Common Stock on the
Effective Date. The restrictions on such shares shall lapse upon
vesting, which shall occur in five equal annual installments beginning
on the first anniversary of the Effective Date.
(d) Automobile. Employer shall provide Employee with an allowance for
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automobile expenses of $850 per month subject to withholding of usual
taxes.
(e) Stock Options. Employee shall be eligible to receive options
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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 Employer's Board as in effect from time to time.
Additionally, the Employee shall be granted, on the Effective Date,
65,000 options to purchase such number of 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(e). The remainder of the options
shall be nonqualified stock options. The options shall be exercisable
at an amount per share equal to the average of the high and low
trading price of the Common Stock on the Effective Date and shall vest
in five equal annual installments following the first anniversary of
the Effective Date.
(f) SERP. At the Effective Date, Employee shall participate in the
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Choice Hotels International, Inc. Supplemental Executive Retirement
Plan ("SERP").
(g) Other Benefits. Employee shall, when eligible, be entitled to
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participate in all other fringe benefits, including vacation policy,
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
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under the Relocation Policy of Employer, as adopted in April 1997 with
the following additions:
(1) Notwithstanding Section 2-A of the Relocation Policy,
Employer will reimburse Employee for a period of up to six months
from the Effective Date for return trips for Employee and
Employee's spouse to and from Employee's Tennessee home.
(2) Notwithstanding Section 2(VIII) of the Relocation Policy,
Employer shall reimburse Employee for real estate commissions not
to exceed 7% of the sales price.
4. Extent of Services. Employee shall devote his full professional
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time, attention, 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
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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 Information. Employee recognizes and
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acknowledges that Employer's and affiliates' present and prospective clients,
franchises, management contracts, acquisitions and personnel, as they may exist
from time to time, are valuable, special and unique assets of Employer's
business. 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 information relating to the
business of Employer that has not otherwise been made public, including but not
limited to Employer's present or prospective clients, franchises, management
contracts or acquisitions. 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 other person or entity, 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.
6. Notices. Any notice, request or demand required or permitted to be
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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. Such notice shall be deemed given
when delivered if personally delivered or when received if sent certified or
registered mail or overnight courier.
7. Elective Positions; Constructive Termination
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(a) Nothing contained in this Agreement is intended to nor shall be
construed to 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
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shall in no way be prejudiced, Employee shall not, thereafter, be
required to perform any services under this Agreement and Employee
shall be entitled to receive all forms of compensation referred to in
Section 3 above, including, without limitation, bonuses (calculated
based only on the actual payout on the EPS portion of the bonus as all
Choice officers receive in a given year) and the continued vesting
through the term of this Agreement of stock options and restricted
stock outstanding at the time of the Constructive Termination.
However, Employee shall not be entitled to receive new stock option
grants or rights to ungranted 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 an offset and thereby reduce its payment by 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 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
other like amounts payable during periods of unemployment 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 officers), (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
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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
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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
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following events and conditions:
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(a) Upon expiration of its term;
(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 options 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.
11. Severance.
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(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
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Securities Exchange Act of 1934, as amended (other than (i) the Employer,
(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.
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12. Excise Taxes.
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(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 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
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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.
13. Legal Fees. Employer shall reimburse the Employee for all reasonable
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attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
14. Entire Agreement. This instrument contains the entire agreement of
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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.
13. Compensation Committee Approval. Notwithstanding any other provision
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to the contrary, this Agreement is subject to the approval of the Employer's
Compensation Committee at its next meeting, which is expected to occur on or
about April 13, 1998, and shall not be valid, binding and enforceable prior
thereto. Prior to such approval, neither party hereto shall make any public
announcement with respect to this Agreement or the employment of Employee by
Employer.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
By:
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Xxxxxxx X. XxXxxxxx
Senior Vice President
Employee:
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Xxxx Xxxxx
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