EXHIBIT 10.6
FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT
[Date], 1997
Mr. Henry R. Silverman
HFS Incorporated
712 Fifth Avenue, 41st Floor
New York, New York 10019
Dear Mr. Silverman:
Reference is hereby made to (i) that certain employment
agreement, dated as of June 30, 1996, as amended on January 27, 1997, by and
between HFS Incorporated ("HFS") and you (the "Agreement") and (ii) that
certain Agreement and Plan of Merger (the "Merger Agreement"), dated as of May
27, 1997, by and between HFS and CUC International, Inc. ("CUC"). Capitalized
terms used in this letter shall have the meanings assigned to them in the
Agreement unless otherwise defined herein (except that, unless the context
otherwise requires, all references to "the Company" shall refer to CUC, as the
surviving corporation in the Merger, as defined in the Merger Agreement).
Subject to and contingent upon the occurrence of the Merger, and for good and
valid consideration, the receipt and sufficiency of which is hereby
acknowledged, HFS, CUC and you agree that the Agreement is hereby amended as
follows:
1. Section 1 of the Agreement is hereby amended to read as
follows:
"1. Term of Employment. The employment of the Executive by
the Company pursuant to this Agreement will commence on the
Closing Date (as defined in that certain Agreement and Plan
of Merger (the "Merger Agreement"), dated as of May 27,
1997, by and between HFS Incorporated and CUC International,
Inc. ("CUC")) and end on the fifth anniversary of the
Closing Date, unless extended or sooner terminated as
hereinafter provided. On the first anniversary of the
Closing Date, and on each anniversary thereafter, the term
of employment will be automatically extended by twelve
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additional calendar months unless prior to such anniversary,
the Company shall deliver to the Executive, or the Executive
shall deliver to the Company, written notice that the term
of employment will end at the expiration of the
then-existing term of employment, including any previous
extensions, and will not be further extended except by
agreement of the Company and the Executive. The term of
employment shall continue until the expiration of all
automatic extensions unless sooner terminated as provided in
this Agreement."
2. The first sentence of Section 2 of the Agreement is
hereby amended in its entirety to read as follows:
"For the period commencing on the Closing Date through and
including December 31, 1999, the Executive shall serve as
President and Chief Executive Officer of the Company, and
for the period commencing January 1, 2000 and thereafter,
the Executive shall serve as Chairman of the Board and
Chairman of the Executive Committee of the Company."
3. Section 4(g)(iv) of the Agreement is hereby amended and
restated to read, in its entirety, as follows:
"(iv) Notwithstanding the foregoing, effective as of the
Closing Date, (A) the Compensation Committee of the Board of
Directors of the Company shall grant to the Executive, under
the New CUC Stock Plan referred to in Section 5.17 of the
Merger Agreement, such plan to be effective as of the
Closing Date, options to acquire that number of shares of
the Company's common stock which is equal to the product of
(1) the number of options to acquire the Company's common
stock that would have been granted to the Executive under
Section 4(g)(i) hereof from and after the Closing Date if
the Executive had remained employed with the Company until
December 31, 2000 and (2) the Exchange Ratio (as defined in
the Merger Agreement). All such options shall have an
exercise price per share equal to the fair market value of a
share of the Company's common stock as of the Closing Date,
shall be fully and immediately exercisable and freely
transferable, and shall otherwise contain terms and
conditions which are no less favorable than the terms and
conditions applicable to options granted under the Plan as
in effect immediately prior to the Closing Date, and
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(B) Section 4(g)(ii) shall terminate and be of no further
force and effect. In the event that a Change-of-Control
Transaction (other than the transactions contemplated by the
Merger Agreement) shall occur, then the Company (or a
Successor, if applicable) shall pay the Executive, in
cancellation of all of the options granted under this
Section 4(g)(iv) which are outstanding immediately prior to
such Change-of-Control Transaction (the "Remaining
Options"), a lump sum amount equal to the value (the "Option
Value") of such Remaining Options, but only if such Option
Value is greater than the excess of (a) the aggregate fair
market value, immediately prior to the Change-of-Control
Transaction, of the shares of the Company's common stock
subject to the Remaining Options over (b) the aggregate
exercise price of the Remaining Options. For purposes of
this Section 4(g)(iv), the Option Value of the Remaining
Options (x) shall be determined by an independent
compensation consultant or investment banker, selected by
the Executive and reasonably acceptable to the Company and
(y) shall appropriately reflect the remaining term of the
Remaining Options, the volatility of the Company's common
stock, current interest rates and such other factors as the
independent compensation consultant or investment banker
deems relevant. Without limiting the generality of the
foregoing, the payment to the Executive of the Option Value
shall be made in cash no later than the day of the
consummation of the Change-of-Control Transaction; provided,
however, that if, in connection with the applicable
Change-of-Control Transaction, the stockholders of the
Company receive consideration substantially in the form of
stock or other equity securities of the Successor or of any
other entity ("Successor Stock"), then the Company shall
have the option to pay the Option Value by delivering to the
Executive, no later than the day of consummation of the
Change-of-Control Transaction, a number of shares of
Successor Stock with an aggregate fair market value (as of
the date of such delivery) equal to the Option Value;
further, provided, that the Company may deliver shares of
Successor Stock in accordance with the foregoing proviso
only if the Successor Stock so delivered is covered by an
effective registration statement, and is freely transferable
by the Executive without any restrictions or limitations.
The Company hereby agrees to take all actions necessary
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and appropriate, including obtaining all requisite
approvals, if any, to effectuate the foregoing payment or
delivery."
4. Section 6(a)(iv) of the Agreement is hereby amended in
its entirety to read as follows:
"(iv) Other. (1) If the Executive's employment is terminated
by the Company, other than as set forth in paragraph (i),
(ii) or (iii) of this Section 6(a), or if the Executive
voluntarily resigns his employment under this Agreement in
connection with a breach of this Agreement by the Company,
then (I) the Company shall continue to make available to the
Executive health and other welfare benefits set forth in
this Agreement (but only to the extent that the Executive is
not receiving substantially the same benefits from another
employer) until the expiration of the then-existing term of
employment under this Agreement (determined immediately
prior to such termination), unless the Executive shall
theretofore deliver a written notice to the Company to the
effect that he elects not to accept such other benefits,
(II) all stock options held by the Executive immediately
prior to such termination, to the extent not theretofore
fully vested and exercisable, shall become fully vested and
exercisable, and all shares of restricted stock held by the
Executive immediately prior to such termination shall become
fully vested and free of restrictions and (III) unless
subparagraph (2) below applies, the Company shall pay to the
Executive, on the date of termination, a lump sum cash
payment equal to the product of (x) the sum of the
Executive's annual base salary (as in effect immediately
prior to such termination) plus .75% of EBITDA for the
twelve (12) calendar months preceding the date of
termination multiplied by (y) the number of years (including
partial years) remaining in the term of employment
(determined immediately prior to such termination);
provided, however, that such payment shall in no event
exceed 150% of the annual base salary in effect on the date
of termination multiplied by the number of years (including
partial years) remaining in the term of employment
(determined immediately prior to such termination).
(2) Upon the first to occur of (I) a failure by the Company
to comply with the requirement of Section 2
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of this Agreement that the Executive will serve as the
Chairman of the Board and the Executive Committee of the
Company from and after January 1, 2000 for any reason other
than the death, disability or resignation of the Executive
and (II) the Executive's employment is terminated by the
Company for any reason other than for Cause or by the
Executive in connection with any breach by the Company of
this Agreement, in each case prior to January 1, 2002, the
Company shall immediately provide the Executive (or his
estate in the event of his death) with the following
described in (x) and (y) below:
(x) $25,000,000 in cash, by wire transfer of
immediately available funds to one or more accounts
designated by the Executive, and
(y) stock options to purchase common stock of the
Company with a Black-Scholes value of $12,500,000 on the
date of termination, such options to have terms and
conditions no less favorable than the most favorable such
options granted to any executive of the Company during the
12-month period ending on the date of such failure or
termination, as applicable; provided, that such options
shall be fully vested upon grant and shall remain
exercisable for their entire terms without regard to any
termination of the Executive's employment.
5. Section 4(d) of the Agreement is hereby amended by adding
the following sentence to the end thereof:
"Without limiting the generality of the foregoing, the
compensation, benefits and perquisites provided pursuant to
this paragraph (d) shall in no event be less favorable than
those provided to the Company's Chairman of the Board of
Directors (at such times as the Executive is not serving in
such capacity) or the Chief Executive Officer (at all other
times during the term of employment hereunder)."
6. A new Section 6A is hereby added to the Agreement to
read, in its entirety, as follows:
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6A. Additional Excise Tax Payment.
(a) 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 (A) the
Executive becomes entitled to any benefits or payments under
this Agreement in connection with a termination of
employment, other than in connection with his voluntary
resignation within six months following the Closing Date,
and (B) 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, but determined without regard to any payment
attributable to the accelerated vesting of the Executive's
stock options as of June 30, 1996 pursuant to Section
4(g)(i) of this Agreement and any additional payments
required under this Section 6A) (such payments and
distributions, excluding the additional payments under this
Section 6A and any payments attributable to such accelerated
vesting, being referred to herein as the "Payments") would
be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (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 6A(a), 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
Executive
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and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 6A(c), all
determinations required to be made under this Section 6A,
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 notice from the Executive, or such earlier time
as is requested by 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
Transaction, 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 6A, 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
6A(c) 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.
(c) 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
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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 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:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) 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,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) 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 6A(c), 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
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and sue 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 sue 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
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.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to 6A, 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 6A(c)) 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 6A(c), 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.
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You further agree to waive any payment to which you may be
entitled as a result of the Merger (as defined in the Merger Agreement)
pursuant to Section 4(b) of the Agreement, it being the intention of the
parties that your rights to such payments in connection with any subsequent
Change-of-Control Transaction shall not be adversely affected by this letter.
This letter is intended to constitute an amendment to the
Agreement (subject to the satisfaction of the conditions contained herein)
and, as amended hereby, the Agreement shall remain in full force and effect.
In order to evidence your agreement with the provisions of this letter,
please sign and return the enclosed copy of this letter, which, subject to
satisfaction of the conditions contained herein, shall constitute a binding
agreement among us.
CUC International, Inc.
By:
--------------------------------------
Name:
Title:
HFS INCORPORATED
By:
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Name:
Title:
Accepted and Agreed to as
of the date first above
written:
- --------------------------------
Henry R. Silverman