EXHIBIT 10.5
FORM OF AGREEMENT
AGREEMENT
This Agreement dated as of May 27, 1997 by and between CUC
International Inc., a Delaware corporation (the "Company"), and Amy N. Lipton
("Executive").
WHEREAS, the Executive and the Company are parties to a certain
Agreement dated as of February 1, 1996, as amended as of January 1, 1997 (the
"Existing Agreement");
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 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 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 the Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment: (i) through December 31, 1999, the
Executive shall serve the Company as General Counsel of its CUC Division and
Deputy General Counsel of the Company, reporting to the President of the CUC
division of the Company
(in each case regardless of the name by which such division is designated, it
being understood that such division is anticipated to include without
limitation those operations conducted by the significant subsidiaries of the
Company immediately before the Merger); and (ii) from and after January 1,
2000, the Executive shall serve as a Senior Vice President and the General
Counsel of the Company, reporting to the Chief Executive Officer of the
Company and being responsible for the management responsibilities expected of
an officer holding such position, which shall be no less, with respect to the
combined companies following the Merger, than they are as of the date hereof
with respect to 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") will begin on the Closing Date (as
defined in the Merger Agreement) and end on the fifth anniversary thereof,
subject to 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.
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 her business time, attention and skill
exclusively to the business and affairs of the Company and its subsidiaries;
provided, that until December 31, 1999, the Executive shall work four days per
week (exclusive of holidays and vacation periods). The Executive will not
engage in any other business activity and will perform faithfully the duties
which may be assigned to her from time to time by 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:
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I. Serving, with the prior approval of the Chairman of the
Board, the Chief Executive Officer or the President or Chief Executive Officer
of the CUC division, 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 her 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
The Company hereby acknowledges that the Merger will
constitute a "Change of Control" for purposes of the Existing Agreement, and
for purposes of the Company's 1996 Executive Retirement Plan, with the result
that subject to the limitation set forth in Section XI 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 and (ii) 75% of the Executive's "Target
Value" under the 1996 Executive Retirement Plan will become payable to the
Executive in cash. The Company shall pay the amount due under the 1996
Executive Retirement Plan upon consummation of the Merger by wire transfer in
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, with the result that the Executive will have the right to
resign her employment at any time and receive certain severance benefits.
Notwithstanding the foregoing (and without waiving the vesting and payments
under clauses (i) and (ii)), the Executive hereby waives her right to claim
Constructive Discharge for purposes of the Existing Agreement as a result of
the consummation of the Merger or any event or circumstance contemplated
thereby and all of her rights to receive severance benefits pursuant to
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the Existing Agreement in return for the rights provided in this Agreement.
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 $300,000 per year, subject to annual increases as
the Company deems appropriate, in accordance with the Company's customary
procedures regarding the salaries of senior officers. 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 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 target bonus of $150,000 (each such
bonus, an "Incentive Compensation Award").
III. 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 600,000
shares of common stock of the Company at fair market value on the grant date,
vesting in four equal installments on each of the first four anniversaries 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,
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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, 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.
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 connection with the
performance of her 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 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 independent competent medical authority that the Executive is
unable to perform her 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 she is no longer Disabled),
the Company shall continue to pay the Executive sixty percent (60%) of her
Base Salary as in effect at the time of the termination minus the amount of
any disability payments
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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 thirty-six (36) 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.
B. During the period the Executive is receiving payments of either regular
compensation or disability insurance described in this Agreement and as long
as she 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 herself reasonably available to the
Company to undertake assignments consistent with her prior position with the
Company and her physical and mental health. If the Company fails to make a
payment or provide a benefit required as part of the 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
as provided in Paragraph D. of Section VIII and 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
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will also continue the benefits and perquisites described in this Agreement
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.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Failure to Employ as General Counsel of the Company; Without Cause
Termination or Constructive Discharge Within One Year After Appointment as
General Counsel of the Company. The provisions of this Paragraph A. shall be
applicable if: (i) (A) the Executive terminates her employment following a
failure of the Company to employ her as General Counsel of the Company from
and after January 1, 2000 as required by Section II hereof or (B) the
Executive becomes General Counsel of the Company in accordance with Section II
hereof but within one year thereafter experiences a Without Cause Termination
or a Constructive Discharge and (ii) Walter A. Forbes is for any reason not
serving as Chief Executive Officer of the Company at the time of such failure
or such Without Cause Termination or Constructive Discharge, as applicable. If
the provisions of this Paragraph A. become applicable, then the Company shall
immediately pay the Executive (or her surviving spouse, estate or personal
representative, as applicable) upon such termination in a lump sum an amount
equal to five hundred percent (500%) of the sum of (i) her 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 each of the last three
years ended on or before the date of the termination, and (B) $150,000 (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 sixty (60) months following such termination.
In addition, all unvested options held by the Executive (including without
limitation the Initial Options) shall become fully vested upon 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 upon such termination.
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B. Resignation Prior to January 1, 2000; Resignation Following
Failure to Appoint Walter A. Forbes as CEO. The provisions of this Paragraph
B. shall be applicable if Paragraph A. does not apply and: (i) the Executive
resigns any time on or after the six-month anniversary of the Closing Date and
prior to January 1, 2000 for any reason, or (ii) the Executive resigns
following the failure of the Company to appoint Walter A. Forbes as Chief
Executive Officer of the Company on or before January 1, 2000. If the
provisions of this Paragraph B. become applicable, then the Company shall
immediately pay the Executive (or her surviving spouse, estate or personal
representative, as applicable) upon such termination in a lump sum an amount
equal to five hundred percent (500%) of the sum of (i) her Base Salary as in
effect at the time of such termination (without regard to any reduction
thereof in violation of Paragraph A.1. of the Section IV hereof) and (ii) the
Highest Bonus. Earned but unpaid Base Salary and earned but unpaid Incentive
Compensation Awards will also be paid in a lump sum at the time of such
resignation. The benefits and perquisites described in this Agreement will be
continued for sixty (60) months following such resignation.
C. Without Cause Termination; Constructive Discharge. If the
Executive's employment terminates due to either a Without Cause Termination or
a Constructive Discharge as defined in this Section below (other than as
contemplated by Paragraph A. or B. of this Section), the Company shall
immediately pay the Executive (or her surviving spouse, estate or personal
representative, as applicable) upon such a termination in a lump sum an amount
equal to three hundred percent (300%) of the sum of (i) her 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 will also 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 that would have vested during the
thirty-six (36) months following the date of such termination (including
without limitation the Initial Options) shall be deemed 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 restrictions on any
shares of restricted stock held by the Executive that would have lapsed during
such 36-month period shall be deemed to lapse fully on the date of such
termination, in each case notwithstanding anything to the contrary in any
applicable stock option or restricted stock agreements.
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D. Resignation. If the Executive resigns, earned but unpaid Base
Salary and any earned but unpaid incentive compensation will be paid to the
Executive in a lump sum within sixty (60) days of such termination. In
addition, in recognition of the fact that the Merger will result in a material
change by the Company in the functions, duties or responsibilities of the
Executive's position which will reduce the ranking or level, dignity,
responsibility, importance or scope of the position, giving rise to a right on
the part of the Executive to claim Constructive Discharge under the Existing
Agreement, if the Executive resigns at any time during the Period of
Employment other than pursuant to Paragraph A., B. or C. of this Section, the
Company shall pay the Executive (or her surviving spouse, estate or personal
representative, as applicable) her Base Salary as in effect at the time of her
resignation for a period of twenty-four (24) months following such
resignation. Such amount shall be paid as provided in Section IV A. hereof.
The benefits and perquisites described in this Agreement will be continued for
twenty-four (24) months following such resignation.
E. Terminations Generally. Upon the termination of the Executive's
employment for any reason, then: (i) all unvested stock options held by the
Executive that were granted before the Closing Date 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, without regard
to such termination of employment; and (ii) 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. In addition, upon the termination of the
Executive's employment for any reason then notwithstanding any provision
hereof but subject to Section XI B., 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.
F. 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 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 material breach of
any of her duties or covenants under this Agreement or her serious, willful
misconduct with respect to the Company or any of its affiliates (including but
not limited to conviction for a felony
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or perpetration of a common law fraud) which, in any such case, 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 any of its material 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 (other
than reductions applicable to all senior executives of the Company) or failure
to appoint or reappoint the Executive to 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 which would reduce the level,
importance or scope of such positions; or any relocation of the Executive to a
place of employment more than 15 miles from the city limits of Stamford,
Connecticut. 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 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 her 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
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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 her
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 her 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 her 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 her possession are
confidential and will remain the property of the Company or its affiliates.
C. I. During the Period of Employment and for two (2) years
thereafter (the "Restricted Period"), irrespective of the cause, manner or
time of any termination, the Executive will not use her 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 her in the
absence of her relationship to the Company or any of its affiliates.
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 will not, without prior express written approval by the Board of
Directors of the Company, 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
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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.
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
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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 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 she may be 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 that there is a Change in Control, as defined below,
other than in connection with the Merger, the Executive may at any time
immediately resign upon written notice to the Company. In the event of such
resignation, the Company shall immediately upon such resignation pay to the
Executive in a lump sum an amount equal to two hundred percent
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(200%) of the sum of (i) her Base Salary as in effect at the time of such
resignation (without regard to any reduction thereof in violation of Paragraph
A.i. of Section IV hereof) and (ii) the Highest Bonus. In addition, any earned
but unpaid Base Salary and any earned but unpaid Incentive Compensation Awards
will be paid to the Executive in a lump sum at such time. The benefits and
perquisites described in this Agreement will also be continued for twenty-four
(24) months following such resignation. In the event there is a Change in
Control, all unvested stock options held by the Executive (including without
limitation the Initial Options) shall immediately upon such Change in Control
become fully vested 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 held by the Executive shall
lapse immediately upon such Change in Control, in each case notwithstanding
anything to the contrary in the applicable stock option or restricted stock
agreement and 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. 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 (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 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
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the Company, to reduce the amount of any Merger Payment otherwise payable to
her (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 her 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 her or for
her benefit over the maximum Merger Payments that should have been paid to her
or for her 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 her receipt of such excess until the date of such
payment; provided, however, that (x) she 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 her 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 application statute of limitations or a
final determination of a court or an Internal Revenue Service proceeding that
no Excise Tax is due and (y) she 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.
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 her or for her benefit were in an amount less than the maximum Merger
Payments
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which could be payable to her without such payments being subject to the
Excise Tax, then the Company shall pay to her, 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 her
or for her benefit over the payments paid to her or for her 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 her non-receipt of such excess until the date of such payment.
C. A "Change in 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 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.
D. 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 payment or benefit provided pursuant to
Section VIII D. or E. above in connection with a voluntary termination by the
Executive before the six-month anniversary of the Closing Date or any
additional payments required under this
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Section XI D.) (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 XI D.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 D.iii., all
determinations required to be made under this Section XI D., 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 XI D., 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
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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 XI D.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,
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 XI D.iii., the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
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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.
iv. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section XI D., 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
D.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 XI D.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 otherwise specifically provided in Paragraph B.
above or this Paragraph D., 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
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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.
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 in the Existing Agreement) and not expressly provided in this Agreement.
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
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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 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; CONSTRUCTION
This Agreement has been executed and delivered in the State of
Connecticut 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 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.
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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 has been included to rapidly
and inexpensively resolve any disputes between them with respect to this
Agreement, and that this Section 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, XVII, XVIII and XX shall
continue in full force in accordance with their respective terms
notwithstanding any termination of the Period of Employment.
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
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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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
CUC INTERNATIONAL INC.
By:
-------------------------------
E. Kirk Shelton
- ----------------------------
Amy N. Lipton
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