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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") dated this 30th day of September, 1996
among Choice Hotels International, Inc. (to be renamed Choice Hotels
Franchising, Inc.) ("Choice Franchising") and Choice Hotels Holdings, Inc. (to
be renamed Choice Hotels International, Inc.) ("Choice Hotels" and, collectively
with Choice Franchising, the "Employer"), both Delaware corporations with
principal offices at 00000 Xxxxxxxx Xxxx, Xxxxxx Xxxxxx, Xxxxxxxx 00000, and
Xxxxxxx X. Xxxxx ("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 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 CEO. The Employee, in his position as
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 Board of Directors of Choice Hotels (the
"Choice Hotels Board") as a Class III director, as specified in the Restated
Certificate of Incorporation of Choice Hotels. After the distribution of Choice
Hotels common stock to the stockholders of Manor Care, Inc. (the "Distribution
Date"), the term "Employer" under this Agreement shall refer solely to Choice
Hotels.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on October 21, 1996 ("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
Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of Four Hundred Twenty-five Thousand
Dollars ($425,000) per annum payable in equal bi-weekly
installments. Such salary shall be reviewed by the Compensation
Committee of the Board of Directors of Employer on the first
anniversary of the Effective Date and thereafter at the end of each
fiscal year 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
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by Employer's Board of Directors. For the Employer's 1997 fiscal
year, the Employee's bonus shall be calculated on a pro rata basis
from the Effective Date. Additionally, the Employer shall pay the
Employee a one-time bonus of $121,232, payable at the Effective
Date.
(c) Restricted Stock. As soon as practicable after the Distribution
Date, Choice Hotels shall issue to Employee restricted Choice
Hotels common stock ("Common Stock") in an amount equal to
$1,250,000 divided by the closing trading price of the Common Stock
on its first day of public trading following the Distribution Date.
Upon issuance, Choice Hotels and Employee shall enter into a Stock
Agreement substantially in the form of Exhibit A hereto. The
restrictions on such shares shall lapse upon vesting, which shall
occur as specified on Exhibit A hereto.
(d) Automobile. Employer shall provide Employee with an allowance
for automobile expenses of $975 per month.
(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. Additionally, the Employee shall be granted, as
soon as practicable after the Distribution Date, options to
purchase such number of shares of Common Stock as is equal to
$4,500,000 divided by the average of the high and low trading price
of the Common Stock on its first day of public trading following
the Distribution Date ("First 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 First Average
Trading Price and shall vest as specified on Exhibit B hereto.
(g) SERP. At the Distribution Date, Employee shall participate in
the Choice Hotels International, Inc. Supplemental Executive
Retirement Plan ("SERP"), with the following amendments:
(1) Section 1.05 of the SERP is deleted and replaced with: "
'Final Average Salary' shall mean the highest average of the
monthly base salary, excluding bonuses or commissions, earned
in a sixty-month period out of
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the 120 months of employment prior to Normal Retirement Age,
Early Retirement Age or the last day of service, as the case
may be."
(2) Section 1.08 of the SERP is deleted and replaced with: "
'Years of Service' shall mean the number of years and months of
actual employment between the Employment Date and the Normal
Retirement Date, the Early Retirement Date or the last day of
service (as the case may be), excluding any period during which
Participant is employed on a part-time basis."
(3) Notwithstanding the calculation of benefits specified is
Section 4.01 of the SERP, the Employee's monthly retirement
benefit will be calculated as follows:
Years of Service * at Retirement Benefit * as %
Normal Retirement Age * of Final Average Salary *
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10 or more 30.0%
7.5 22.5%
5 15%
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* Terms are defined in the SERP.
Years of Service under the SERP shall be calculated as of the
Effective Date.
(4) Notwithstanding Section 5.01 of the SERP, the Employee may
elect Early Retirement at age 62, whether or not employed by
the Employer at such time, with full payment of benefits to
which Employee is entitled commencing thereon, without any
reduction for Early Retirement. All references to "15 Years of
Service" in Section 5.01 and Article VII of the SERP are
replaced with "5 Years of Service."
(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,
with the following additions:
(1) Notwithstanding Section II(C) of the Relocation Policy, the
Employer will pay for the separate shipping of two automobiles;
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(2) Notwithstanding Section III(A) of the Relocation Policy,
the Employer will pay for as many trips as are reasonably
necessary for the purpose of locating suitable housing; and,
(3) Notwithstanding Section III(B) of the Relocation Policy,
Employer will reimburse Employee for the reasonable costs of a
furnished apartment, including rent, utilities and broker's
fees, for a period of up to one year from the Effective Date
and first-class return trips for Employee and Employee's spouse
to Employee's California home as are reasonably needed.
(4) The Employer will also provide the Employee with a bridge
loan with a term of one year and limited to 90% of the amount
of equity in Employee's present house (as determined in
accordance with Employer's policy on such loans) and secured by
a lien on the house that Employee is selling. The other terms
of the bridge loan shall be in accordance with Employer's
policy on such loans.
(5) Pursuant to its Home Purchase Policy, the Employer shall
offer to purchase the Employee's home in accordance with the
terms and conditions of such policy.
(6) Employer and Employee acknowledge that if Employee
voluntarily terminates this Agreement prior to one year from
the Effective Date because he is "Constructively Terminated"
(as defined in Section 7), Employee shall have no obligation to
reimburse the Employer for relocation costs.
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 the securities of public companies, or the securities of
private companies or limited partnerships outside the lodging industries if such
holdings are passive investments of one percent or less of outstanding
securities and Employee does not hold positions of director, officer, employee
or general partner. 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
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
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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. 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
given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or, if sent by certified or registered mail 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 within three days of mailing if sent certified or registered mail.
7. Elective Positions.
(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; provided,
however, that if Employee is Constructively Terminated (as defined in Section
7(b) 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.
(b) 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 Choice Hotels Board, assignment of duties by the Employer
inconsistent with Section 1, 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
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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, including but not limited to, refusal to
carry out duties and instructions of the Employer's Board of Directors
consistent with the position, material dishonesty, a violation or a
willful breach of this Agreement, conviction of a felony involving
moral turpitude, fraud or misappropriation of corporate funds or any
willful acts or omissions inimical to or contrary to material policies
of Employer not arbitrarily applied in the case of Employee. 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. Employee shall be entitled to fourteen (14) days
advance written notice of termination, except where the basis for
termination constitutes 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. Except in the case of
material dishonesty, bad faith, conviction of a felony or fraud,
Employee shall have an opportunity to cure the basis for termination
during the fourteen day period after written notice.
(c) If Employee is unable to perform the essential functions of the
services described herein 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 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.
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11. Legal Fees. Employer shall reimburse the Employee for all
reasonable attorneys fees incurred in connection with the negotiation and
execution of this Agreement.
12. Registration Rights. The Employer shall use its reasonable best
efforts to register on Form S-8 the restricted stock issued pursuant to Section
3(c) and the nonqualified options issued pursuant to Section 3(f) of this
Agreement. All costs in connection with such registration shall be borne by the
Employer.
13. 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.
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14. BOARD APPROVAL. NOTWITHSTANDING ANY OTHER PROVISION TO THE
CONTRARY, THIS AGREEMENT IS SUBJECT TO THE APPROVAL OF THE CHOICE HOTELS BOARD
AND THE CHOICE FRANCHISING BOARD AT ITS SEPTEMBER 30, 1996 MEETING 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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Xxxxx X. Xxxxx
Senior Vice President
CHOICE HOTELS HOLDINGS, INC.
(to be renamed Choice Hotels International, Inc.)
By:
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Xxxxx X. Xxxxx
Senior Vice President
Employee:
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Xxxxxxx X. Xxxxx
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