EXHIBIT 10.3
FORM OF AMENDED AND RESTATED EMPLOYMENT AGREEMENT
RESTATED EMPLOYMENT AGREEMENT
OF
WALTER A. FORBES
This amended and restated employment agreement ("Agreement") dated as
of May 27, 1997 by and between CUC International Inc., a Delaware corporation
(the "Company"), and Walter A. Forbes (the "Executive").
WHEREAS, the Executive and the Company are parties to a certain
Agreement dated as of May 15, 1996 (the "Existing Agreement"); and
WHEREAS, subject to the consummation of the transactions contemplated
by the Agreement and Plan of Merger between the Company and HFS Incorporated,
a Delaware corporation (the "Merger Partner") dated as of May 27, 1997 (the
"Merger Agreement"), whereby the Merger Partner will be merged with and into
the Company with the Company being the surviving corporation (the "Merger"),
the Company 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 and the
Company wish to make certain further amendments to the Existing Agreement and
to restate the 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 remain employed by the
Company, for the Period of Employment as provided in Section III A. below and
upon the other terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
In accordance with the governance plan and By-Laws of the Company
adopted in connection with the Merger Agreement: during the Period of
Employment (i) through December 31, 1999, the Executive shall serve the
Company as Chairman of the Company's Board of Directors and Chairman of the
Executive Committee of the Company; and (ii) from and after January 1, 2000,
the Executive shall serve as the Company's President and Chief Executive
Officer responsible for the general management of the affairs of the Company
reporting only to the Board of Directors of the Company. 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. During the Period of
Employment, the Executive also agrees to serve, if elected, as an Officer and
Director of any subsidiary or affiliate of the Company.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under this Agreement (the
"Period of Employment") shall 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, 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 or agreed
extensions unless it is terminated as provided in this Agreement.
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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
Board of Directors of the Company. Nothing in this Agreement shall preclude
the Executive from devoting time during reasonable periods required for:
i. Serving, with the prior approval of 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;
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 foregoing activities 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
The Company hereby acknowledges that the Merger will
constitute a "Change of Control" for purposes of the Existing Agreement and
the Company's 1996 Executive Retirement Plan, with the result that subject to
the limitation set forth in Section XII B. below, upon the consummation of the
Merger, (i) all stock options held by the Executive will become fully vested
and any restrictions on any shares of restricted stock held by the Executive
will lapse, (ii) 75% of the Executive's "Target Value" under the 1996
Executive Retirement Plan will become payable to the Executive in cash and
(iii) the Executive
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will have the right to resign his employment at any time and receive certain
severance benefits. The Company shall pay the amount due under the 1996
Executive Retirement Plan upon consummation of the Merger by wire transfer of
immediately available funds to one or more accounts designated by the
Executive. The Company also acknowledges that, upon consummation of the
Merger, grounds for a "Constructive Discharge" will have occurred under the
Existing Agreement. Notwithstanding the foregoing (and without waiving the
vesting and payments described in clauses (i) and (ii) above), the Executive
hereby waives his right to claim Constructive Discharge under the Existing
Agreement as a result of the consummation of the Merger or any event or
circumstance contemplated thereby and all of his rights to receive severance
benefits pursuant to the Existing Agreement in return for the rights provided
in this Agreement.
For all services rendered by the Executive in any capacity 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:
A. Base Salary
The Company shall pay the Executive a fixed base salary ("Base
Salary") of not less than $1,250,000 per annum, subject to annual increases as
the Board of Directors of the Company, or a committee assigned by the Board,
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 twice each month.
B. Annual Incentive Awards
The Executive will receive an annual bonus for each fiscal year that
ends after date of the Merger Agreement and before the end of the Period of
Employment equal to the lesser of (i) 0.75% of "EBITDA" (as defined herein)
for such year and (ii) 100% of the Base Salary as in effect during such year
(each such bonus, an "Incentive Compensation Award").
"EBITDA" means the Company's earnings before interest, taxes,
depreciation and amortization, adjusted for any extraordinary gains or losses,
as reflected on the Company's Consolidated Statements of Income, and further
downward adjusted by
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the cost of capital related to acquisitions or mergers completed by the
Company. For purposes of determining such cost of capital, interest at a rate
of 12% per annum will be applied to the purchase price or merger consideration
incurred by the Company, including all capitalized related costs, in
connection with the applicable transaction.
C. Long-Term Incentive Awards
As of the Closing Date, the Company will grant the Executive
Non-Qualified Stock Options (the "Initial Options") with respect to 4 million
shares of common stock of the Company at fair market value on the grant date,
vesting in three equal installments on each of the first three anniversaries
of the Closing Date.
Thereafter, subject to any approval or ratification by shareholders
as required, the Company may grant the Executive Incentive Stock Options and
Non-Qualified Stock Options at fair market value from time to time based on
the financial and strategic results achieved each year, and at a competitive
level based on the then current Base Salary of the Executive.
D. Additional Benefits
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 any salaried employees are eligible under
any plan or program now or later established by the Company for salaried
employees. 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 group hospitalization, health, dental care, life or
other insurance, tax qualified pension, savings, thrift and profit sharing
plans, termination pay programs, sick leave plans, vacation, travel or
accident insurance, disability insurance, 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 or senior executives as long as such amendment or termination is
applicable to all salaried employees or senior executives, as the case may be.
Specifically, the Company shall furnish the Executive, without cost
to the Executive, group term and supplemental term life insurance for the
benefit of the Executive's beneficiary
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in the combined amount of at least $2,500,000, coverage under the Company's
group hospitalization, health and dental care insurance plans, supplemental
medical reimbursement plan, coverage for expenses incurred by the Executive or
his dependents who are covered under the Company's group hospitalization,
health and dental insurance plans which are not covered by other Company plans
and which do not exceed $10,000 per year, and long-term disability insurance
for the benefit of the Executive in an amount no less than sixty percent (60%)
of Base Salary. The Executive will be entitled to a minimum of four (4) weeks
vacation annually.
Without limiting the generality of the foregoing, the compensation
and benefits provided pursuant to this Paragraph D. shall in no event be less
favorable than those provided to the Company's Chief Executive Officer (at
such times as the Executive is not serving in such capacity) or the Chairman
of the Company's Board of Directors (at all other times during the Period of
Employment).
E. Perquisites
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 results of which will be reported to the Chairman of the
Compensation Committee of the Board of Directors. 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 $15,000 per year.
The Company shall pay directly (or reimburse the Executive for)
$15,000 per year of dues incurred by the Executive with respect to clubs used
primarily for business purposes. The Executive shall provide whatever
information the Company might request to ensure that such payment (or
reimbursement) is tax deductible for the Company.
Without limiting the generality of the foregoing, the perquisites
provided to the Executive shall in no event be less favorable than those
provided to the Company's Chief Executive Officer (at such times as the
Executive is not serving in such capacity) or the Chairman of the Company's
Board of Directors (at all other times during the Period of Employment).
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F. Life Insurance Policies
i. The Executive owns insurance policies nos. 2913144, 3023808, and
3001153 with Guardian Life Insurance Company of America ("Guardian"), policies
nos. 1046438 and 1071502 with Security Mutual Life Insurance Company of New
York ("Security") and policy 2633-125 with Canada Life (the Guardian, Security
and Canada Life policies are referred to herein as the "Policies"). The
Policies provide a death benefit equal to the cash surrender value of the
Policies. The Executive has the right to name a beneficiary for all of the
death benefits, subject to the rights of the Company under the Prior Life
Insurance Agreements described below in subparagraph vi. As part of the
compensation paid by the Company to the Executive pursuant to this Section IV,
the Company has advanced certain premium payments on the Policies.
ii. In consideration of the services performed by the Executive
pursuant to this Agreement, the Company agrees to advance annual premium
payments for the Policies, in the aggregate, in the amount of approximately
$540,000 or such other annual amount as may be agreed to in writing between
the Company and the Executive per year (the "Required Premiums") through the
calendar year in which the Executive attains age sixty-one (61), regardless of
whether the Executive is employed by the Company at the time the premiums are
paid; provided, however, that the Required Premiums made by the Company shall
cease in the event the Executive Breaches the "Covenant Not To Compete"
annexed hereto as Exhibit A and described in subparagraph iii. below.
iii. In consideration of the Required Premiums to be advanced
annually by the Company pursuant to this Section IV F., whether or not the
Executive is employed by the Company pursuant to this Agreement, the Executive
agrees not to compete with the Company pursuant to the terms of the "Covenant
Not To Compete" annexed hereto as Exhibit A.
iv. In further consideration of the premiums to be advanced annually
by the Company, the Executive further agrees that pursuant to the terms of
this Paragraph F., until the date the Executive attains age sixty (60), the
Executive may not withdraw any amount (either as a Policy loan or a withdrawal
of cash surrender value) from the Policies.
v. The Policies have been transferred by the Executive to the escrow
agent agreed to by the Executive and the Company (the "Escrow Agent") pursuant
to the escrow agreement between the Company, the Executive and the Escrow
Agent annexed
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hereto as Exhibit B (the "Escrow Agreement"). In the event the Executive
violates the terms of the Covenant Not To Compete prior to the Executive
attaining age sixty (60), the Executive shall forfeit any interest in the
Policies, and the Escrow Agent shall transfer the Policies to the Company,
subject to the provisions of the Escrow Agreement and the provisions of
subparagraph viii. below. The Executive has executed an assignment agreement
("Assignment Agreement"), annexed hereto as Exhibit C, to reflect the
obligation of the Executive to transfer the Policies to the Company in such
event, and the Assignment Agreement shall be held in escrow by the Escrow
Agent. Upon the Executive having attained age sixty (60) without having
violated the terms of the Covenant Not To Compete, the Escrow Agent shall
return the Policies to the Executive, and the Executive shall hold all right,
title and interest in and to the Policies, without regard to the terms of the
Covenant Not To Compete, but subject to the New Collateral Assignments
described in subparagraph vi. below.
vi. Pursuant to collateral assignment agreements dated December 12,
1988 and March 18, 1991, the Executive has assigned to the Company an interest
in the Policies issued by Security equal to the premiums advanced by the
Company. Pursuant to collateral assignment agreements dated June 2, 1988, the
Executive has assigned to the Company an interest in the Policies issued by
Guardian equal to the premiums advanced by the Company. These agreements are
referred to herein collectively as the "Prior Life Insurance Agreements." New
collateral assignments have been entered into between Guardian, Security and
Canada Life (respectively), the Company and the Executive, copies of which are
annexed hereto as Exhibit D ("New Collateral Assignments"). Each provides that
the Company shall have an interest in such respective Policies equal to the
premiums advanced by the Company. The New Collateral Assignments shall
supersede the Prior Life Insurance Agreements.
vii. During the term of this Agreement and further provided that the
Executive does not breach the terms of the Covenant Not To Compete before his
attainment of age sixty (60), in the event that the Company fails to make
Required Premium payments for the Policies for any calendar year by December
31st of such year (the "Default Date"), the Company's right under any or all
of the New Collateral Assignments to be repaid from the cash surrender value
of the Policies, in respect of the premiums advanced by the Company to the
Executive, shall be reduced by the shortfall (unless otherwise subsequently
advanced by the Company) with interest at the rate of seven percent (7%) per
annum (without regard to which Policy there is a failure to pay). Such
interest shall be calculated from the
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Default Date to the earlier of the (a) date the Company advances Required
Premiums with respect to which there is a shortfall and certifies to the
Executive that such payment is being made to make up for the shortfall, or (b)
date of withdrawal of premiums advanced by the Company pursuant to the New
Collateral Assignment. For purposes of the preceding sentence, the Executive
may request a reduction from any Policy of the premiums to be repaid to the
Company pursuant to the New Collateral Assignments.
viii. Any disputes regarding (a) the interpretation and application
of this Paragraph F., (b) the Policies and (c) the documents set forth in
Exhibits A, B, C and D to this Agreement, except that the Covenant Not To
Compete as set forth in Exhibit A shall be included for purposes of this
subparagraph viii. only until the Executive attains age sixty (60), which
cannot be settled amicably within thirty (30) days after written notice by one
party to the other of a dispute (or after such longer period agreed to in
writing by the parties), shall thereafter be determined by arbitration in
Stamford, Connecticut under the rules of the American Arbitration Association,
which shall be the sole remedy for any disputes arising under this Paragraph
F. Judgment on the award rendered in such arbitration may be entered in any
court of competent jurisdiction. If there is a dispute relating to any matter
under this Paragraph F. which would go to arbitration any action to be taken
by a party hereto or the Escrow Agent shall be deferred until the final
determination of the arbitration proceedings.
ix. In the event the Executive breaches the Covenant Not To Compete
after attaining age sixty (60), the Company may seek an injunction in a court
of competent jurisdiction barring the Executive from breaching the Covenant
Not To Compete.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel,
entertainment, business and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Agreement.
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SECTION VI
DISABILITY
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability.
However, in the event the Executive is disabled for a continuous period of six
months or more, the Company may terminate the employment of the Executive and
make payments to the Executive under Section VIII C. and D. of this Agreement.
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, the Executive will
furnish information and assistance 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 Board of Directors. 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.
C. The term "disability" will have the same meaning as under the
disability insurance provided pursuant to this Agreement.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, the Company's obligation to make payments under this Agreement
shall cease as of the date of death, except as provided in Section VIII C. and
D. of this Agreement. 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.
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SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT;
FAILURE TO APPOINT AS CEO
A. For Cause. If the Executive's employment terminates due to a
Termination for Cause, earned but unpaid Base Salary will be paid on a lump
sum basis for the year in which the termination occurs. Earned but unpaid
Incentive Compensation Awards for any prior years shall be payable in full,
but no other payments will be made or benefits provided by the Company, except
as otherwise provided in Paragraph D. of this Section.
B. Failure to Appoint as CEO; Without Cause Termination or
Constructive Discharge Before January 1, 2002. Upon the first to occur of (i)
a failure by the Company to comply with the requirement of Section II of this
Agreement that the Executive will serve as Chief Executive Officer of the
Company from and after January 1, 2000 for any reason other than the death,
disability, retirement or resignation of the Executive and (ii) a Without
Cause Termination or a Constructive Discharge, 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 (in
addition to any payments or benefits that may be or become due under
Paragraphs C. and D. below):
(x) $25,000,000 in cash, by wire transfer of immediately available
funds to one or more accounts designated by the Executive,
(y) (a) 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 or the Merger Partner during
the 12-month period ending on the date of such failure, Without Cause
Termination or Constructive Discharge, 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,
b) any stock options granted to the Executive prior to such event
(including, without limitation, the Initial Options) shall become fully vested
upon such event, notwithstanding anything to the contrary in any applicable
stock option agreements, and shall remain exercisable for the remainder
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of their terms without regard to any termination of the Executive's employment,
and
c) any restrictions on any shares of restricted stock issued to the
Executive prior to such event shall lapse upon such event.
C. Termination of Employment Generally. In the event the Executive's
employment with the Company terminates for any reason (including, without
limitation, disability, death, resignation or retirement) other than
Termination for Cause, the Executive (or his estate in the event of his death)
shall be entitled to the following described in (x) and (y) below (in addition
to any payments or benefits that may be due under Paragraphs B. and D.
hereof):
(x) $10,000,000 in cash, by wire transfer of immediately available
funds to one or more accounts designated by the Executive,
(y) a) all earned but unpaid Base Salary and Incentive
Compensation Awards on a pro rata basis for the year in which such termination
occurs,
b) any stock options granted to the Executive prior to such
termination (including, without limitation, the Initial Options) shall become
fully vested upon such termination, notwithstanding anything to the contrary
in any applicable stock option agreements, and shall remain exercisable for
the remainder of their terms without regard to such termination,
c) any restrictions on any shares of restricted stock
issued to the Executive prior to such termination shall lapse upon such
termination,
d) the Company shall immediately contribute to the Escrow
Agent (or another escrow agent mutually acceptable to the parties hereto), in
a lump sum, all the Required Premiums that would thereafter be payable under
Section IV F.ii., as if the Executive's employment continued through the
calendar year in which the Executive would have attained age sixty-one (61),
which Required Premiums shall be held pursuant to an escrow agreement mutually
acceptable to the parties hereto, with all interest and/or dividends thereon
to be paid periodically to the Company, and
e) the welfare benefits otherwise provided to the Executive
under Section IV D., including without limitation group hospitalization,
health, dental care, life insurance and
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disability insurance shall be continued for a period of five years following
such termination of employment for the benefit of the Executive and, to the
extent applicable, the Executive's spouse.
D. Termination Generally. Upon the termination of the Executive's
employment for any reason, then notwithstanding any provision hereof, all
unvested stock options held by the Executive that were granted before the
Closing Date and all unvested Initial Options 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. In addition, upon the
termination of the Executive's employment at any time for any reason then
notwithstanding any provision hereof but subject to Section XII B.: (i) any
restrictions on any shares of restricted stock issued to the Executive prior
to the Closing Date shall lapse on the date of such termination; and (ii) any
amounts that became payable to the Executive upon the Merger pursuant to
Section 6.1 of the Company's 1996 Executive Retirement Plan (determined
without regard to Section 6.2 thereof) but have not previously been paid shall
be paid in full.
E. Definitions. For this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" means termination of the Executive's
employment by the Company 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 is not cured (if such breach 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 a failure of the Company to fulfill its
obligations under this Agreement in any material respect including any
reduction of the Executive's Base Salary or other compensation or failure to
appoint or reappoint the Executive to, or continue the Executive in, any of
the positions required by Section II hereof, or other material change by the
Company in the functions, duties or responsibilities of the position which
would reduce the ranking or level, dignity, responsibility, importance or
scope of the position; or any assignment or reassignment by the Company of the
Executive to a place of employment that is more than 15 miles from the city
limits of Stamford, Connecticut. The Executive will
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provide the Company a written notice which describes the circumstances being
relied on for the termination with respect to the Agreement within ninety (90)
days after the event giving rise to the notice. The Company will have thirty
(30) days to remedy the situation prior to the Termination for Constructive
Dismissal.
iii. "Without Cause Termination" means termination of the
Executive's employment by the Company other than due to death, disability or
expiration of the Period of Employment and other than Termination for Cause.
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
cooperate with the Company as may reasonably be requested in connection with
any claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Period of Employment or after, 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
concerning the affairs, business, clients, customers or other relationships of
the Company except as required by law. The Executive will not make use of this
type of information for his own purposes or for the benefit of any person or
organization other than the Company. 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 whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
C. During the Period of Employment and upon a Termination for Cause,
for a 12-month period thereafter the Executive will not use his status with
the Company to obtain loans, goods or services from another organization on
terms that would not
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be available to him in the absence of his relationship to the Company. During
such period, the Executive will not make any statements or perform any acts
intended to advance the interest of any existing or prospective competitors of
the Company in any way that will injure the interest of the Company. During
such period, the Executive without express prior written approval from the
Board of Directors will not solicit any members of the then-current clients of
the Company or discuss with any employee of the Company information or
operation of any business intended to compete with the Company.
The parties desire that the provisions of Section IX are enforced to
the fullest extent permissible under the laws and public policies applied in
the jurisdictions in which enforcement is sought. If any portion of Section IX
is judged to be invalid or unenforceable, Section IX will be amended to
conform to the legal changes so that the remainder of this Agreement remains
in effect.
SECTION X
RETIREMENT
The Executive may elect with no less than six (6) months written
advance notice to the Company to retire under this Agreement. In the event of
retirement, the Period of Employment shall cease as of the retirement date and
the Executive shall receive the payments and benefits provided in Section VIII
C. and D. of this Agreement.
SECTION XI
INDEMNIFICATION, LITIGATION
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the Company's state of incorporation in effect at
that time, or 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 made a party by reason of being a director or
officer of the Company.
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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, and the enforcement of the rights under 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 XII
EFFECTS OF CHANGE OF CONTROL
A. In the event there is a Change of Control (as defined below) other
than in connection with the Merger, any stock options granted to the Executive
prior to such Change of Control shall become fully vested upon such Change of
Control and shall remain exercisable for the remainder of their term without
regard to any termination of the Executive's employment, and any restrictions
on any shares of restricted stock issued to the Executive prior to such Change
of Control (whether before or after the Closing Date) shall lapse upon such
Change of Control.
B. i. In the event that the accelerated vesting of the Executive's
stock options and restricted stock and/or the payment of benefits to the
Executive pursuant to the terms of the Company's 1996 Executive Retirement
Plan, in each case upon the consummation of the Merger and/or any payments or
benefits that become due under this Agreement as a result of the Executive's
voluntary resignation before the six-month anniversary of the Closing Date
(the "Merger Payments") would, in the opinion of independent tax counsel
selected by the Company and reasonably acceptable to the Executive ("Tax
Counsel"), be subject to the excise tax (the "Excise Tax") imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (in whole
or in part), as determined as provided below, the Merger Payments shall be
reduced (but not below zero) until no portion of the Merger Payments would be
subject to the Excise Tax. For purposes of this limitation, (a) no portion of
the Merger Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing shall be taken into account, (b) only the
portion of the Merger Payments which in the opinion of Tax Counsel constitute
a "parachute payment" within the meaning of Section 280G(b)(2) of the Code
shall be taken into account, (c) the Merger Payments shall be reduced only to
the
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extent necessary so that the Merger Payments would not be subject to the
Excise Tax, in the opinion of Tax Counsel, and (d) the value of any noncash
benefit or any deferred payment or benefit included in such Merger Payments
shall be determined by the Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. If any reduction in Merger Payments
is necessary to satisfy this Paragraph, the Executive shall be entitled, at
any time by written notice to the Company, to reduce the amount of any Merger
Payment otherwise payable to him (including, without limitation by waiving, in
whole or in part, the accelerated vesting under this Agreement of options
previously granted Executive), and to select from among the Merger Payments
those to be so reduced in order to satisfy the limitations of this Paragraph,
and the Company shall reduce the amount of such Merger Payments accordingly.
Any options the vesting of which would have otherwise accelerated but for the
provisions of this Paragraph shall continue to vest in accordance with their
respective terms, and shall, upon such vesting, remain exercisable until the
applicable expiration dates contained in the applicable stock option
agreements pursuant to which such stock options were granted, whether or not
the Executive's employment is terminated.
ii. If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying
the terms of this Paragraph B., any Merger Payments paid to the Executive or
for his benefit exceeded the limitation contained in Paragraph B. hereof, then
the Executive shall pay to the Company, within 60 days of receipt of notice of
such final determination or opinion, an amount equal to the sum of (a) the
excess of the Merger Payments paid to him or for his benefit over the maximum
Merger Payments that should have been paid to him or for his benefit taking
into account the limitations contained in this Paragraph B. and (b) interest
on the amount set forth in clause (a) of this sentence at the applicable
federal rate (as defined in Section 1274(d) of the Code) from the date of his
receipt of such excess until the date of such payment; provided, however, that
(x) he shall not be required to make any payment to the Company pursuant to
this Paragraph B.ii., (1) if such final determination requires the payment by
him of an Excise Tax by reason of any Merger Payment or portion thereof or (2)
in the case of the opinion of Tax Counsel, until the expiration of the
applicable statute of limitations or a final determination of a court or an
Internal Revenue Service proceeding that no Excise Tax is due and (y) he shall
only be required to make a payment to the Company pursuant to this Paragraph
B.ii. to the extent such payment is deductible (or excludable from income) for
federal income tax purposes.
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iii. If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying
the terms of Paragraph B.i. hereof, any Merger Payments paid to him or for his
benefit were in an amount less than the maximum Merger Payments which could be
payable to him without such payments being subject to the Excise Tax, then the
Company shall pay to him, within ninety days of receipt of notice of such
final determination or opinion, an amount equal to the sum of (a) the excess,
if any, of the payments that should have been paid to him or for his benefit
over the payments paid to him or for his benefit and (b) interest on the
amount set forth in clause (a) of this sentence at the applicable federal rate
(as defined in Section 1274(d) of the Code) from the date of his non-receipt
of such excess until the date of such payment.
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 after taking into account any reduction in the Merger Payments
required pursuant to Paragraph B. above, 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, including without limitation the Merger Payments as
reduced (if required) pursuant to Paragraph B. above, but determined without
regard to any additional payments required under this Section XII C.) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of 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 XII 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.
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ii. Subject to the provisions of Section XII C.iii., all
determinations required to be made under this Section XII 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 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 of 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 XII 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:
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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,
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
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 XII C.iii., 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 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.
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iv. If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section XII 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 XII C.iii.) 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 XII
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.
v. Except as specifically provided in Paragraph B. above or in this
Paragraph C., no provision in any plan, program or agreement (including
without limitation the Company's 1996 Executive Retirement Plan and any and
all stock option and restricted stock plans and agreements) that may require
the Executive to forego or defer any payments or other benefits as a result of
their possible treatment as "excess parachute payments" under Section 280G of
the Code shall have any application to any payments or other benefits provided
pursuant to this Agreement.
D. A "Change Of Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of 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 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 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, shall determine constitutes a "Change of
Control" for the purposes hereof. For purposes hereof, ownership of voting
securities shall take
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into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) pursuant
to the Securities Exchange Act of 1934, as amended.
SECTION XIII
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 XIV
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 XV
EFFECT OF PRIOR AGREEMENTS
From and after the Closing Date, this Agreement shall supersede any
prior employment agreement between the Company and the Executive 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 in the Existing Agreement) and not expressly provided in this Agreement.
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SECTION XVI
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" as used herein
will mean the other corporation and this Agreement shall continue in full
force and effect. Without limiting the generality of the foregoing, except
where the context otherwise requires, the term "Company" shall refer to the
Company both before and after the Merger.
SECTION XVII
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 XVIII
GOVERNING LAW
This Agreement has been executed and delivered in the State of
Connecticut and its validity, interpretation, performance and enforcement
shall be governed by the laws of that state.
SECTION XIX
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
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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
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 XIX has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this Section XIX 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.
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SECTION XX
SURVIVAL
Sections IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, XVI, XVIII and
XIX shall continue in full force and effect in accordance with their
respective terms, notwithstanding any termination of the Period of Employment.
IN WITNESS WHEREOF, the undersigned have caused the foregoing
agreement to be executed as of the date first above written.
CUC International Inc.
By: ________________
E. Kirk Shelton
President
------------------------------
Walter A. Forbes
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