Exhibit 10.01
EMPLOYMENT AGREEMENT
--------------------
This Agreement ("Agreement") dated this 31st day of July, 1998 between
Choice Hotels International, Inc. ("Employer"), a Delaware corporation with
principal offices at 00000 Xxxxxxxx Xxxx, Xxxxxx Xxxxxx, Xxxxxxxx 00000, and
Xxxxxxx X. Xxxxxxxxx ("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 President and Chief Executive
Officer ("CEO"). 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, such duties to be rendered at the principal office of
Employer, subject to reasonable travel. The Employer shall assign to Employee
only those duties consistent with his position as President and CEO. The
Employee, in his position as President and CEO, shall report directly to the
Employer's Board of Directors and all senior executives of the Employer shall
report either directly to Employee or indirectly through other senior
executives. 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. At the Effective Date (defined below), Employee shall be
appointed to the Employer's Board of Directors as a Class III director, as
specified in the Restated Certificate of Incorporation of Employer.
2. Term. Subject to the provisions for termination hereinafter provided,
----
the term of this Agreement shall begin on the date hereof ("Effective Date")
and shall terminate five (5) years thereafter (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 Five Hundred Thousand Dollars ($500,000)
------
per annum payable in equal bi-weekly installments. Such base salary
shall commence on the first date that Employee renders services to
Employer, which is expected to be on or about August 31, 1998 (the
"Commencement 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 Sixty Percent (60%) 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 1998 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 St. Xxx Corporation,
the Employer shall pay Employee an amount equal to 60% of Employee's
base salary earned during fiscal year 1998 while employed at St. Xxx
Corporation. The payment referred to in the preceding sentence shall
be paid at the same time that Employer's fiscal year 1998 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 $825,000 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 three equal annual
installments beginning one year from the Effective Date.
(d) Automobile. Employer shall provide Employee with an allowance for
----------
automobile expenses of $975 per month beginning on the Commencement
Date.
(e) Club Membership. Employer shall provide Employee with an
---------------
appropriate corporate membership, including initial and annual fees,
at a dining and/or recreational club at the choice of Employee for the
purpose of business entertainment.
(f) 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 1999 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 1998. 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 such number of shares of Common Stock as is equal to
$7,500,000 divided by the Average Trading Price. 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.
(g) SERP. At the Commencement Date, Employee shall participate in the
----
Choice Hotels International, Inc. Supplemental Executive Retirement
Plan ("SERP").
(h) Other Benefits. Employee shall, when eligible, be entitled to
--------------
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.
(i) Relocation Expenses. Employee shall be entitled to all benefits
--------------------
under the Relocation Policy of Employer, as adopted in August 1996.
4. Extent of Services. Employee shall devote his full professional
------------------
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 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,
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 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 compensation referred to in Section 3 above, 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 this Section 7, "Constructively Terminated" shall mean
removal or termination of Employee other than in accordance with Section 10,
failure of the Employer to place Employee's name in nomination for re-election
to the Employer's Board, assignment of duties by the Employer inconsistent with
Section 1, a decrease in Employee's compensation, a change in Employee's title
or the line of reporting set forth in Section 1 or 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;
(b) For Cause, which means gross negligence, wilful misconduct, wilful
nonfeasance, a material breach of this Agreement, conviction following
final disposition of any available appeal of a felony, or pleading guilty
or no contest to a felony. 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 or cure the basis for termination during the
fourteen day period after written notice. In the event of termination by
Employer for Cause, vested but unexercised options granted during the term
of this Agreement shall be forfeited as a result thereof, as of the date of
notice and Employer shall have the right to purchase from Employee, at the
price paid by Employee, such of its Common Stock as has been acquired by
Employee by exercise of a stock option granted during the term of this
Agreement if such exercise is within six (6) months prior to termination of
this Agreement as a result of such breach.
(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 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, plus 75% of the amount of any bonus awarded to Employee 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, (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.
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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. XxXxxxxx
-------------------------------------------
Xxxxxxx X. XxXxxxxx
Senior Vice President
Employee:
/s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxxx
