EXHIBIT 10.7
FORM OF AGREEMENT
AGREEMENT
This Agreement dated as of _________, 1997 by and among HFS
Incorporated, a Delaware corporation ("HFS"), CUC International, Inc., a
Delaware corporation (the "Merger Partner" and, following consummation of the
Merger, as hereinafter defined, the "Company"), and Stephen P. Holmes
("Executive").
WHEREAS, the Executive and HFS are parties to a certain
Agreement dated as of October 1, 1994 (the "Existing Agreement"); and
WHEREAS, subject to the consummation of the transactions
contemplated by the Agreement and Plan of Merger between HFS and the Merger
Partner, dated as of May 27, 1997 (the "Merger Agreement"), whereby HFS will
be merged with and into the Merger Partner with the Merger Partner being the
surviving corporation (the "Merger"), HFS, the Merger Partner and the
Executive wish to make arrangements for the Executive's employment by the
Company from and after the Merger;
WHEREAS, to implement those arrangements, the Executive, HFS
and the Merger Partner wish to make certain further amendments to the Existing
Agreement and to restate the Existing Agreement as so amended in its entirety
herein for ease of reference, subject to and effective as of and upon the
consummation of the Merger.
NOW THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
SECTION I
EMPLOYMENT
Subject to the consummation of the Merger, the Company
agrees to employ the Executive and the Executive agrees to be employed by the
Company for the Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to
serve as Vice Chairman of the Company reporting directly to the Chief
Executive Officer of the Company. During the Period
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of Employment, the Executive shall serve as a member of the Board of Directors
of the Company for the period for which he is and shall from time to time be
elected.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under this
Agreement (the "Period of Employment") will begin on the Closing Date (as
defined in the Merger Agreement) and end on the fifth anniversary thereof,
subject to extension or termination as provided in this Agreement. On the
first anniversary of the Closing Date, and on each subsequent anniversary
thereof, the Period of Employment will be automatically extended by an
additional year unless prior to such anniversary, the Company shall deliver to
the Executive, or the Executive shall deliver to the Company, written notice
that the Period of Employment will end at the expiration of the then-existing
Period of Employment, including any previous extensions thereof, and will not
be further extended except by agreement of the Company and the Executive. The
Period of Employment shall continue until the expiration of all automatic
extensions unless it is terminated as provided in this Agreement.
B. Duties
During the Period of Employment and except for illness,
incapacity or any reasonable vacation periods in any calendar year, the
Executive shall devote all of his business time, attention and skill
exclusively to the business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity and will perform
faithfully the duties which may be assigned to him from time to time by the
Chief Executive Officer of the Company consistent with Section II of this
Agreement. Nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
i. Serving, with the prior approval of the Chairman of the
Board, the Chief Executive Officer or the Board of Directors of the Company,
as a director or member of a committee or organization involving no actual or
potential conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking engagements;
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iii. Engaging in charitable and community activities; and
iv. Investing his personal assets in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities described in clauses i, ii and iii, above will be allowed as
long as they do not materially affect or interfere with the performance of the
Executive's duties and obligations to the Company.
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation
For all services rendered by the Executive pursuant to this
Agreement during the Period of Employment, including services as an executive,
officer, director or committee member of the Company or any subsidiary of the
Company, the Executive shall be compensated as follows:
i. Base Salary
The Company shall pay the Executive a fixed
base salary ("Base Salary") of not less than $650,000 per annum, subject to
annual increases as the Company deems appropriate, in accordance with the
Company's customary procedures regarding the salaries of senior officers.
Annual increases in Base Salary, once granted, shall not be subject to
revocation. Base Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
ii. Annual Incentive Awards
The Executive will be eligible for discretionary
annual incentive compensation awards; provided, that the Executive
will be eligible to receive an annual bonus for each fiscal year that ends
after the date of the Merger Agreement and before the end of the Period of
Employment based upon a target bonus of $650,000 (each such bonus, an
"Incentive Compensation Award").
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iii. Long-Term Incentive Awards
The Executive will be eligible for discretionary
stock option and restricted stock awards including, without
limitation, restricted stock and stock option awards as identified in Exhibit
5.17 to the Merger Agreement, such restricted stock to vest in three equal
installments, and such options to vest in four equal installments, commencing
of the first anniversary of the Closing Date.
B. Additional Benefits
i. In addition, the Executive will be entitled to
participate in all other compensation or employee benefit plans or programs
and receive all benefits and perquisites for which salaried employees of the
Company generally are eligible under any plan or program now or later
established by the Company on the same basis as similarly situated senior
executives of the Company. The Executive will participate to the extent
permissible under the terms and provisions of such plans or programs, in
accordance with program provisions. These include any group hospitalization,
health, dental care, life or other insurance, savings, thrift and profit
sharing plans, termination pay programs, sick leave plans, travel or accident
insurance, disability insurance, company auto allowance or auto lease plans,
and contingent compensation plans, including capital accumulation programs and
stock option plans, which the Company may establish. Nothing in this Agreement
will preclude the Company from amending or terminating any of the plans or
programs applicable to salaried employees or senior executives as long as such
amendment or termination is applicable to all salaried employees or senior
executives, as the case may be. The Company will furnish to the Executive
long-term disability insurance in an amount not less than sixty percent (60%)
of Base Salary. The Company will reimburse the Executive for the cost of an
annual physical examination of the Executive by a physician selected by the
Executive. The Company will also furnish to the Executive (or reimburse the
Executive for) personal financial, investment or tax advice in an amount not
to exceed $4,500 per year.
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in
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connection with the performance of his duties and obligations under this
Agreement. The Executive shall comply with such limitations and reporting
requirements with respect to expenses as may be established from time to time.
SECTION VI
DISABILITY
A. i. If the Executive becomes Disabled, as defined below, during the
Period of Employment, the Period of Employment may be terminated at the option
of the Executive upon notice of resignation to the Company or at the option of
the Company upon notice of termination to the Executive. "Disabled" means a
determination by an independent competent medical authority that the
Executive is unable to perform his duties under this Agreement and in all
reasonable medical likelihood such inability will continue for a period in
excess of one hundred and eighty (180) days. Unless otherwise agreed by the
Executive and the Company, the independent medical authority shall be selected
by the Executive and the Company each selecting a board-certified licensed
physician and the two physicians selected designating an independent medical
authority, whose determination that the Executive is Disabled shall be binding
upon the Company and the Executive. In such event, until the Executive reaches
the age of sixty-five (65) (or such earlier date on which he is no longer
Disabled), the Company shall continue to pay the Executive sixty percent (60%)
of his Base Salary as in effect at the time of the termination minus the
amount of any disability payments the Executive may receive under any
long-term disability insurance maintained by the Company. Such amount shall be
payable as provided in Section IV.A hereof. Earned but unpaid Base Salary and
earned but unpaid incentive compensation awards will be paid in a lump sum at
the time of such termination. No incentive compensation shall be deemed earned
within the meaning of this Agreement until the Executive is informed in
writing as to the amount of such incentive compensation the Executive is to be
awarded as to a particular period.
ii. The Company will also continue the benefits and perquisites
described in this Agreement for a period of sixty (60) months subsequent to
any such termination.
iii. In the event of any such termination, all unvested stock
options held by the Executive shall become fully vested on the date of such
termination and shall remain fully exercisable until the applicable expiration
dates contained in the applicable stock option agreements pursuant to which
such stock options were granted.
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iv. In the event of any such termination, any restrictions on any
shares of restricted stock issued to the Executive prior to such termination
shall lapse on the date of such termination.
B. During the period the Executive is receiving payments of either
regular compensation or disability insurance described in this Agreement and
as long as he is physically and mentally able to do so without undue burden,
the Executive will furnish information and assistance to the Company as
reasonably requested and from time to time will make himself reasonably
available to the Company to undertake assignments consistent with his prior
position with the Company and his physical and mental health. During the
disability period, the Executive is responsible and reports directly to the
Company's Chief Executive Officer. If the Company fails to make a payment or
provide a benefit required as part of this Agreement, the Executive's
obligation to furnish information and assistance will end.
SECTION VII
DEATH
In the event of the death of the Executive during the Period
of Employment, the Period of Employment shall end and the Company's obligation
to make payments under this Agreement shall cease as of the date of death,
except for earned but unpaid Base Salary and any earned but unpaid incentive
compensation awards, which will be paid to the Executive's surviving spouse,
estate or personal representative, as applicable, in a lump sum within sixty
(60) days after the date of the Executive's death. The Executive's designated
beneficiary will be entitled to receive the proceeds of any life or other
insurance or other death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites described in this
Agreement for the benefit of Executive's beneficiaries and surviving family
for a period of thirty-six (36) months commencing on the Executive's death.
Any stock options held by the Executive shall become fully vested on the date
of the Executive's death and shall remain fully exercisable until the
applicable expiration dates contained in the applicable stock option
agreements pursuant to which such stock options were granted. Any restrictions
on any shares of restricted stock held by the Executive at the time of the
Executive's death shall lapse on the date of the Executive's death.
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SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Without Cause Termination and Constructive Discharge before
January 1, 2000. If the Executive's employment terminates due to either a
Without Cause Termination or a Constructive Discharge, as defined below,
before January 1, 2000 (other than as set forth in B. below), the Company
shall pay the Executive (or his surviving spouse, estate or personal
representative, as applicable) upon such Without Cause Termination or
Constructive Discharge a lump sum amount equal to three hundred percent (300%)
of the sum of (i) his Base Salary as in effect at the time of such termination
(without regard to any reduction thereof in violation of Paragraph A.i. of
Section IV hereof) and (ii) the higher of (A) the highest of the annual
bonuses and/or Incentive Compensation Awards paid or payable to the Executive
with respect to each of the last three years ended on or before such
termination and (B) $520,000 (such higher amount, the "Highest Bonus"). Earned
but unpaid Base Salary and earned but unpaid Incentive Compensation Awards
also will be paid in a lump sum at the time of such termination. The benefits
and perquisites described in this Agreement will be continued for thirty-six
(36) months following such termination. In the event of any such Without Cause
Termination or Constructive Discharge, any unvested stock options held by the
Executive shall become fully vested on the date of such termination, and shall
remain exercisable for the remainder of their terms without regard to such
termination, and any restrictions on any shares of restricted stock held by
the Executive shall lapse on the date of such termination, in each case
notwithstanding anything to the contrary in any applicable stock option or
restricted stock agreements.
B. Certain Constructive Discharges. If the Executive's employment
terminates by reason of a Constructive Discharge due to the termination of
Henry R. Silverman's employment by the Company or Mr. Silverman for any reason
before January 1, 2002, or a failure of the Company for any reason to appoint
and maintain Henry R. Silverman as Chairman of the Board of Directors and
Executive Committee of the Company for the whole of the years 2000 and 2001,
the Company shall pay the Executive (or his surviving spouse, estate or
personal representative, as applicable) a lump sum equal to five hundred
percent (500%) of the sum of (i) his Base Salary in effect at the time of such
termination (without regard to any reduction thereof in violation of Paragraph
A.i. of Section IV hereof) and (ii) the Highest Bonus. Earned but unpaid Base
Salary and earned but unpaid Incentive Compensation Awards also will be paid
in a lump sum at the time of such termination. The benefits and perquisites
described in this Agreement will be continued for thirty-six
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(36) months following such termination. In the event of any such Constructive
Discharge, any unvested stock options held by the Executive shall become fully
vested on the date of such termination, and shall remain exercisable for the
remainder of their terms without regard to such termination, and any
restrictions on any shares of restricted stock held by the Executive shall
lapse on the date of such termination, in each case notwithstanding anything
to the contrary in any applicable stock option or restricted stock agreements.
C. Without Cause Termination, Constructive Discharge or Resignation
After December 31, 1999. If, after December 31, 1999, the Executive's
employment terminates due to either a Without Cause Termination or a
Constructive Discharge, as defined below (other than as set forth in B above),
or the Executive resigns for any reason, the Company shall pay the Executive
(or his surviving spouse, estate, or personal representative, as applicable) a
lump sum amount equal to five hundred percent (500%) of the sum of (i) his
Base Salary as in effect at the time of such termination (without regard to
any reduction thereof in violation of Paragraph A.i. of Section IV hereof) and
(ii) the Highest Bonus. Earned but unpaid Base Salary and earned but unpaid
Incentive Compensation Awards also will be paid in a lump sum at the time of
such termination. The benefits and perquisites described in this Agreement
will be continued for thirty-six (36) months following such termination. In
the event of such a Without Cause Termination or Constructive Discharge, any
unvested options held by the Executive shall become fully vested on the date
of such termination, and shall remain exercisable for the remainder of their
term without regard to such termination, and any restriction on any shares of
restricted stock held by the Executive shall lapse on the date of such
termination, in each case notwithstanding anything to the contrary in any
applicable stock option or restricted stock agreements. In the event of any
such resignation, any unvested stock options held by the Executive that would
have vested during the thirty-six (36) months following the date of such
resignation shall become fully vested on the date of such resignation and
shall remain exercisable for the remainder of their term without regard to
such resignation, and any restrictions on any shares of restricted stock held
by the Executive that would have lapsed during the thirty-six (36) months
following the date of such resignation shall lapse on the date of such
resignation, in each case not withstanding anything to the contrary in any
applicable stock option or restricted stock agreements.
D. If the Executive's employment terminates due to a Termination for
Cause or due to a resignation prior to January
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1, 2000, earned but unpaid Base Salary and any earned but unpaid Incentive
Compensation Awards will be paid to the Executive in a lump sum within sixty
(60) days of such termination.
E. For this Agreement, the following terms have the following
meanings:
i. "Termination for Cause" means termination of the
Executive's employment by the Company upon a good faith determination by the
Board of Directors, by written notice to the Executive specifying the event
relied upon for such termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement (including but not
limited to conviction for a felony or perpetration of a common law fraud)
which has resulted or is likely to result in material economic damage to the
Company and which, in any such case, is not cured (if such is capable of being
cured) within thirty (30) days after written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of the
Executive's employment by the Executive due to the termination of Henry R.
Silverman's employment by the Company or Mr. Silverman for any reason before
January 1, 2001 or a failure of the Company for any reason to appoint and
maintain Henry R. Silverman as Chairman of the Board of Directors and
Executive Committee of the Company for the whole of the year 2000; or a
failure of the Company to fulfill its obligations under this Agreement in any
material respect (including without limitation any reduction of the
Executive's Base Salary, as the same may be increased during the Period of
Employment, or other compensation); or failure to appoint or reappoint the
Executive to any of the positions required by Section II hereof; or other
material change by the Company in the functions, duties or responsibilities of
the Executive's position (not contemplated by this Agreement) which would
reduce the ranking or level, dignity, responsibility, importance or scope of
such position; or any relocation of the Executive's employment to a location
more than 15 miles from the city limits of Parsippany, New Jersey. The
Executive will provide the Company a written notice which describes the
circumstances being relied on for the termination with respect to this
Agreement within ninety (90) days after the event giving rise to the notice.
The Company will have thirty (30) days after receipt of such notice to remedy
the situation prior to the termination for Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without Cause"
means termination of the Executive's employment by the Company other than due
to death, disability, or Termination for Cause. Without limiting the
generality of the foregoing, the Executive shall be deemed to have been
terminated Without
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Cause if the Company provides notice to the Executive pursuant to Section III
A. of this Agreement that the Period of Employment will end at the expiration
of the then-existing Period of Employment.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
fully cooperate with the Company and its affiliates as may be requested in
connection with any claims or legal action in which the Company or any of its
affiliates is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to this Agreement or to the affairs; business; results of
operations; accounting methods, practices and procedures; members; acquisition
candidates; financial condition; clients; customers or other relationships of
the Company or any of its affiliates ("Information") is confidential and is a
unique and valuable asset of the Company or any of its affiliates. Access to
and knowledge of certain of the Information is essential to the performance of
the Executive's duties under this Agreement. The Executive will not during the
Period of Employment or thereafter, except to the extent reasonably necessary
in performance of his duties under this Agreement, give to any person, firm,
association, corporation, or governmental agency any Information, except as
may be required by law. The Executive will not make use of the Information for
his own purposes or for the benefit of any person or organization other than
the Company or any of its affiliates. The Executive will also use his best
efforts to prevent the disclosure of this Information by others. All records,
memoranda, etc. relating to the business of the Company or its affiliates,
whether made by the Executive or otherwise coming into his possession, are
confidential and will remain the property of the Company or its affiliates.
C. i. During the Period of Employment and for a twenty-four (24)
month period thereafter (the "Restricted Period"), irrespective of the
cause, manner or time of any termination, the Executive will not use his
status with the Company or any of its affiliates to obtain loans, goods or
services from another organization on terms that would not be available to
him in the absence of his relationship to the Company or any of its
affiliates.
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ii. During the Restricted Period, the Executive will not make any
statements or perform any acts intended to or which may have the effect of
advancing the interest of any existing or prospective competitors of the
Company or any of its affiliates or in any way injuring the interests of the
Company or any of its affiliates. During the Restricted Period, the Executive,
without prior express written approval by the Board of Directors of the
Company, will not engage in, or directly or indirectly (whether for
compensation or otherwise) own or hold proprietary interest in, manage,
operate, or control, or join or participate in the ownership, management,
operation or control of, or furnish any capital to or be connected in any
manner with, any party which competes in any way or manner with the business
of the Company or any of its affiliates, as such business or businesses may be
conducted from time to time, either as a general or limited partner,
proprietor, common or preferred shareholder, officer, director, agent,
employee, consultant, trustee, affiliate, or otherwise. The Executive
acknowledges that the Company's and its affiliates' businesses are conducted
nationally and internationally and agrees that the provisions in the foregoing
sentence shall operate throughout the United States and the world.
iii. During the Restricted Period, the Executive, without express
prior written approval from the Board of Directors, will not solicit any
members or the then-current clients of the Company or any of its affiliates
for any existing business of the Company or any of its affiliates or discuss
with any employee of the Company or any of its affiliates information or
operation of any business intended to compete with the Company or any of its
affiliates.
iv. During the Restricted Period, the Executive will not meddle with
the employees or affairs of the Company or any of its affiliates or solicit or
induce any person who is an employee of the Company or any of its affiliates
to terminate any relationship such person may have with the Company or any of
its affiliates, nor shall the Executive during such period directly or
indirectly engage, employ or compensate, or cause or permit any person with
which the Executive may be affiliated, to engage, employ or compensate, any
employee of the Company or any of its affiliates. The Executive hereby
represents and warrants that the Executive has not entered into any agreement,
understanding or arrangement with any employee of the Company or any of its
affiliates pertaining to any business in which the Executive has participated
or plans to participate, or to the employment, engagement or compensation of
any such employee.
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v. For the purposes of this Agreement, proprietary interest means
legal or equitable ownership, whether through stock holding or otherwise, of
an equity interest in a business, firm or entity or ownership of more than 5%
of any class of equity interest in a publicly-held company and the term
"affiliate" shall include without limitation all subsidiaries and licensees of
the Company.
D. The Executive hereby acknowledges that damages at law may be an
insufficient remedy to the Company if the Executive violates the terms of this
Agreement and that the Company shall be entitled, upon making the requisite
showing, to preliminary and/or permanent injunctive relief in any court of
competent jurisdiction to restrain the breach of or otherwise to specifically
enforce any of the covenants contained in this Section IX without the
necessity of showing any actual damage or that monetary damages would not
provide an adequate remedy. Such right to an injunction shall be in addition
to, and not in limitation of, any other rights or remedies the Company may
have. Without limiting the generality of the foregoing, neither party shall
oppose any motion the other party may make for any expedited discovery or
hearing in connection with any alleged breach of this Section IX.
E. The period of time during which the provisions of this Section IX
shall be in effect shall be extended by the length of time during which the
Executive is in breach of the terms hereof as determined by any court of
competent jurisdiction on the Company's application for injunctive relief.
F. The Executive agrees that the restrictions contained in this
Section IX are an essential element of the compensation the Executive is
granted hereunder and but for the Executive's agreement to comply with such
restrictions, the Company would not have entered into this Agreement.
SECTION X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of the Company's incorporation in effect at
that time, or the certificate of incorporation and by-laws of the Company,
whichever affords the greater protection to the Executive. The Executive will
be entitled to any insurance policies the Company may elect to maintain
generally for the benefit of its officers and directors against all costs,
charges and expenses incurred in connection with any action, suit or
proceeding to which he may be
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made a party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this
Agreement, the Company shall reimburse the Executive for all costs and
expenses related to the litigation or proceeding, including attorney's fees
and expenses, providing that the litigation or proceeding results in either
settlement requiring the Company to make a payment to the Executive or
judgment in favor of the Executive.
SECTION XI
CHANGE IN CONTROL
A. In the event there is a Change in Control (other than in
connection with the Merger), as defined below, all unvested stock options held
by the Executive shall immediately upon such Change in Control become fully
vested and shall remain exercisable until the applicable expiration dates
contained in the applicable stock option agreements pursuant to which such
stock options were granted, and all restrictions on any shares of restricted
stock held by the Executive shall lapse immediately upon such Change in
Control, in each case whether or not the Executive resigns. The Executive
shall not be entitled to receive any duplicative payments as a result of the
implementation of the provisions of this Section XI.
B. A "Change in Control" shall be deemed to have occurred if (i) a
tender offer shall be made and consummated for the ownership of fifty-one
percent (51%) or more of the outstanding voting securities of the Company,
(ii) the Company or any subsidiary thereof shall be merged with or into or
consolidated with another corporation and as a result of such merger or
consolidation less than seventy-five percent (75%) of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, (iii) the Company shall
sell substantially all of its assets to another corporation which is not a
wholly-owned subsidiary of the Company, (iv) a person, within the meaning of
Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of
the Securities Exchange Act of 1934, as amended, shall acquire twenty-five
percent (25%) or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record) or (v) any other
event shall take place that a majority of the Board of Directors of the
Company, in its sole discretion,
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shall determine constitutes a "Change in Control" for the purposes hereof. For
purposes hereof, ownership of voting securities shall take into account and
shall include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Securities
Exchange Act of 1934, as amended.
C. i. 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 Paragraph A., B. or C. of Section VIII hereof 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 additional payments required under this
Section XI C.) (a "Payment") 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,
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 retaining an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section XI C.i., 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 and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
ii. Subject to the provisions of Section XI C. iii., all
determinations required to be made under this Section XI.C., 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
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of a request therefor from the Executive or the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, 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 XI C., 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 XII C.iii. 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.
iii. 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 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:
(a) give the Company any information reasonably requested
by the Company relating to such claim.
(b) 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.
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(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) 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
expense (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 XI 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 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 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.
iv. If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section XI C., 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 XI C.iii.) promptly
pay to the Company the amount of such refund (together with any
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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 XI C.iii., 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.
SECTION XII
MITIGATION
The Executive shall not be required to mitigate the amount
of any payment provided for hereunder by seeking other employment or
otherwise, nor shall the amount of any such payment be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date the Executive's employment hereunder terminates.
SECTION XIII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any
payments under this Agreement all federal, state, city or other taxes that
shall be required pursuant to any law or governmental regulation.
SECTION XIV
EFFECT OF PRIOR AGREEMENTS
From and after the Closing Date, this Agreement shall
supersede any prior employment agreement between the Company and the Executive
hereof, and subject to the consummation of the Merger, any such prior
employment agreement shall be deemed terminated without any remaining
obligations of either party thereunder. This Agreement shall not affect or
operate to reduce any benefit or compensation inuring to the Executive of a
kind elsewhere provided (other than the Existing Agreement) and not expressly
provided in this Agreement. The Executive agrees to waive any severance
payment to which he may be entitled as a result of the Merger pursuant to
Section 3(b) of the Existing Agreement.
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SECTION XV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially
all of its assets to, another corporation which assumes this Agreement and all
obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger or sale of assets the term "the Company" will mean the
other corporation and this Agreement shall continue in full force and effect.
SECTION XVI
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver.
A waiver shall operate only as to the specific term or condition waived and
will not constitute a waiver for the future or act on anything other than that
which is specifically waived.
SECTION XVII
GOVERNING LAW
This Agreement has been executed and delivered in the State
of New Jersey and its validity, interpretation, performance and enforcement
shall be governed by the internal laws of that state.
SECTION XVIII
ARBITRATION
A. Any controversy, dispute or claim arising out of or relating to
this Agreement or the breach hereof which cannot be settled by mutual
agreement (other than with respect to the matters covered by Section IX for
which the Company may, but shall not be required to, seek injunctive relief)
shall be finally settled by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state arbitration law)
as follows: Any party who is aggrieved shall deliver a notice to the other
party setting forth the specific points in dispute. Any points remaining in
dispute twenty (20) days after the giving of such notice may be submitted to
arbitration in New York, New York, to Jams/Endispute, before a single
arbitrator appointed in accordance with the
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arbitration rules of Jams/Endispute, modified only as herein expressly
provided. After the aforesaid twenty (20) days, either party, upon ten (10)
days notice to the other, may so submit the points in dispute to arbitration.
The arbitrator may enter a default decision against any party who fails to
participate in the arbitration proceedings.
B. The decision of the arbitrator on the points in dispute will be
final, unappealable and binding, and judgment on the award may be entered in
any court having jurisdiction thereof.
C. Except as otherwise provided in this Agreement, the arbitrator
will be authorized to apportion its fees and expenses and the reasonable
attorneys' fees and expenses of any such party as the arbitrator deems
appropriate. In the absence of any such apportionment, the fees and expenses
of the arbitrator will be borne equally by each party, and each party will
bear the fees and expenses of its own attorney.
D. The parties agree that this Section XVIII has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this Section XVIII shall be grounds for dismissal of
any court action commenced by either party with respect to this Agreement,
other than post-arbitration actions seeking to enforce an arbitration award.
In the event that any court determines that this arbitration procedure is not
binding, or otherwise allows any litigation regarding a dispute, claim, or
controversy covered by this Agreement to proceed, the parties hereto hereby
waive any and all right to a trial by jury in or with respect to such
litigation.
E. The parties shall keep confidential, and shall not disclose to any
person, except as may be required by law, the existence of any controversy
hereunder, the referral of any such controversy to arbitration or the status
or resolution thereof.
SECTION XIX
SURVIVAL
Sections V, VI, VII, VIII, IX, X, XI, XII, XVIII and XX
shall continue in full force in accordance with their respective terms
notwithstanding any termination of the Period of Employment.
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SECTION XX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction contained herein is held
to be invalid or unenforceable in any respect, in whole or in part, such
finding shall in no way affect the validity or enforceability of any other
provision of this Agreement. The parties hereto further agree that any such
invalid or unenforceable provision shall be deemed modified so that it shall
be enforced to the greatest extent permissible under law, and to the extent
that any court of competent jurisdiction determines any restriction herein to
be unreasonable in any respect, such court may limit this Agreement to render
it reasonable in the light of the circumstances in which it was entered into
and specifically enforce this Agreement as limited.
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
HFS INCORPORATED
By:
-----------------------------------
Henry R. Silverman
CUC INTERNATIONAL, INC.
By:
-----------------------------------
E. Kirk Shelton
- -------------------------------
Stephen P. Holmes
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