EXHIBIT 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of the 19th
day of December, 2002, by and between ARLINGTON HOSPITALITY, INC., a Delaware
corporation (hereinafter referred to as "Employer") and Jerry H. Herman
(hereinafter referred to "Employee").
WITNESSETH:
WHEREAS, Employee desires to be employed by Employer and Employer
desires to employ Employee subject to and upon the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set out, the parties agree as follows:
1. Term. The Employer hereby offers and Employee hereby accepts
employment for a period commencing with January 7, 2003 and ending December 31,
2005 (such period, except as Employee's employment is earlier terminated
pursuant to the terms herein, referred to as the "Term"). The first "Year" of
this Agreement shall be the period from January 7, 2003 through December 31,
2003. The second "Year" and the third "Year" shall be the calendar years 2004
and 2005, respectively. The Years are hereinafter sometimes referred to
individually as a "Year" or "Year One," "Year Two" and "Year Three," as
applicable.
2. Compensation.
(a) Base Compensation. During the Term of this Agreement,
Employee's compensation shall be a base salary of $300,000 per Year
(salary for Year One shall be 359/365 of $300,000).
(b) Bonus. Employee shall be entitled to earn a bonus for each
Year comprised of a "Cash Bonus" portion and an "Equity Performance
Bonus" portion, both of which shall be subject to ceiling amounts set
forth below, and which will be achieved to the extent that Employer
performs within certain specified percentages of the "Budget" for each
Year, as detailed below. In addition, although Employer has established
long-term growth plans and has no present plans for sale or other major
events, in the event Employer experiences a "Capital Event" (as
hereinafter defined) during the Term hereof, Employee may be entitled
to a Capital Event Performance Bonus as outlined below.
The Cash Bonus shall be payable in cash and the Equity
Performance Bonus amount shall be payable by the issuance of Employer
common stock, with the number of shares applicable thereto as outlined
below, subject to Section 2(d). The Budget shall be set by Employer's
board of directors (the "Board") for each of calendar years 2003, 2004
and 2005, as soon as possible prior to or following the commencement of
the applicable Year in question. The Tests (as defined below) shall be
set by the Board acting in good faith after consultation with Employee
and taking into consideration among other factors the general economic
and capital market conditions affecting the hotel industry as of the
date of setting the Tests. The Budget shall be comprised of three (3)
equally weighted components (each a "Test"):
(i) Pre-tax income component (as defined) of Employer
for the applicable Year ("PTI");
(ii) Adjusted Stockholders' equity per share
component (as defined) of Employer for the applicable Year
("EQPS"); and
(iii) A third benchmark for the applicable Year ("New
Benchmark") which shall be comprised of up to two of the
following three components, such new component(s) (each, a
"New Sub Benchmark") having a weight of 16.66% (for an
aggregate weight of 33.33% for the New Benchmark) in the event
two (2) components or used, or in the event one component is
used, having an aggregate weight of 33.33% and measured by
Employer's success in:
(1) developing new AmeriHost Inn franchises
or consummating relationships with new joint venture
partners;
(2) growing the AmeriHost brand; or
(3) completing the construction and
development of new AmeriHost Inns in a timely and
cost-effective manner;
provided that: (A) Employer and Employee shall mutually select
the one (1) or two (2) New Sub Benchmarks (or any other new
sub benchmark mutually agreed upon by Employer and Employee)
within sixty (60) days from the date the Board approves the
business plan submitted by Employee (which covers Year One at
a minimum); and (B) any such approved New Sub Benchmark shall
be quantified by mutual agreement of Employer and Employee for
purposes of computation and measurement on a going forward
basis; provided further that in the event they fail to agree
upon one (1) or two (2) New Sub Benchmarks with respect to the
applicable Year, then the New Benchmark shall not apply for
such Year and the Budget for such Year shall be comprised
solely of two (2) equally weighted Tests, namely PTI and EQPS.
The parties agree and acknowledge that each Test and New Sub
Benchmark is independent and that the failure to achieve a
certain Test or New Sub Benchmark shall not in any way affect
Employee's ability to receive a bonus with respect to the
Tests and/or New Sub Benchmarks which are met. Attached hereto
as Exhibit A are the Tests for Year One.
In computing the PTI component for an applicable Year, this
amount shall be determined based upon the pre-tax income of Employer
for such Year as reflected in its audited financial statements for such
Year, eliminating the impact of any compensation expense associated
with any issuance of shares per Section 2(d) or Section 2(f) hereof or
any cash bonus per Section 2(d) hereof.
In determining the EQPS Test for a particular Year, this
amount shall be determined based upon the stockholders equity of
Employer for the previous year ended
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as reflected in its audited financial statements for such Year plus the
sum of (i) the budgeted net income amount for that particular Year and
(ii) the budgeted deferred income balance projected as of December 31
for such Year, with such sum to be divided by the number of issued and
outstanding shares of common stock of Employer at the end of the year
prior to such Year, as reduced by any shares outstanding from the
exercise of any options, warrants and other rights to acquire common
stock of Employer which had been granted prior to December 31, 2002,
with the exception of any shares, issued pursuant to this Agreement or
pursuant to the supplemental retention performance bonus plans between
Employer on the one hand and each of James Dale, Paul Eskenazi, Richard
Gerhart and David Harjung.
In computing actual EQPS for a particular Year, this amount
shall be determined based upon the sum of (i) the stockholder's equity
of Employer for the immediately preceding calendar year as reflected in
its audited financial statements; (ii) the net income for the Year in
question; and (iii) the deferred income balance as of December 31 of
that particular Year (each as set forth in its audited financial
statements), with such sum to be divided by the number of issued and
outstanding shares of common stock of Employer at the end of such Year;
less any shares outstanding from the exercise of any options, warrants
and other rights to acquire common stock of Employer outstanding on
December 31, 2002, with the exception of any shares, stock options or
rights pursuant to this Agreement or pursuant to the supplemental
retention and performance bonus plans between Employer on the one hand
and each of James Dale, Paul Eskenazi, Richard Gerhart and David
Harjung.
The computation of PTI, EQPS and the New Benchmark shall be
made by Employer and delivered to Employee (together with all necessary
backup materials) as soon as practicable following completion of
Employer's audit for the applicable Year; such computation shall be
deemed final unless Employee shall deliver written notice of objection
to Employer within ten (10) business days following delivery of the
applicable computation. Should such notice of objection be timely
delivered and should Employer not agree with Employee's objection
within five (5) business days following its delivery, then Employer's
audit committee shall designate an independent certified public
accountant who has not worked for Employer over the past twenty-four
(24) months to determine the applicable PTI, EQPS and/or New Benchmark
amount, which determination shall be final and binding upon the
parties.
The maximum Cash Bonus and Equity Performance Bonus shall be
earned (subject to risk of forfeiture of up to two-thirds of each
Year's Equity Performance Bonus as detailed below) with respect to a
particular Year in the event Employer equals or exceeds one hundred
thirty percent (130%) of Budget for such Year for each of the Tests
(i.e., each Test being provided equal weighting -- thirty-three and
one-third percent (33.33%) to each of the PTI, EQPS and New Benchmark
Tests, or fifty percent (50%) to each of PTI and EQPS Tests if a New
Benchmark cannot be agreed to). For each one percentage point of
targeted PTI, EQPS and New Benchmark (if applicable) in a particular
Year that Employer falls short of one hundred thirty percent (130%) of
Budget for the Test in question, then two and one-half percent (2.5%)
of the maximum bonus amount applicable to that Test for the Cash Bonus
and Equity Performance Bonus shall
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be reduced. For example, if exactly one hundred ten percent (110%) of
Budget for a Year is achieved on all three (3) Tests, then fifty
percent (50%) of the maximum Cash Bonus and Equity Performance Bonus is
achieved, and if less than ninety percent (90%) of Budget for a Year is
achieved on all three (3) Tests, then none of the Cash Bonus or Equity
Performance Bonus amount will be earned with respect to such Year.
(c) Cash Bonus. The maximum Cash Bonus amount that can be
earned by Employee with respect to each Year, subject to achievement of
the Tests set forth above is as follows:
(i) Year One -- $40,000;
(ii) Year Two -- $85,000; and
(iii) Year Three -- $115,000.
The Cash Bonus amount shall be fully vested for a particular Year if
Employee is in the employ of Employer at the end of such Year, and
shall be paid promptly following the determination of the percentage of
the maximum Cash Bonus amount to which Employee is entitled. Employee
shall not be entitled to any of the Cash Bonus amount with respect to a
particular Year if he is not employed by Employer for any reason at the
end of such Year. Employer may apply Cash Bonus amounts to fund any
statutory withholding obligations it has with respect to Employee's
compensation hereunder.
(d) Equity Performance Bonus. The Equity Performance Bonus
shall be an award to Employee, partially subject to risk of forfeiture
as set forth below, of that number of shares of common stock of
Employer that could be purchased at the "Stock Factor Price" based upon
the Equity Performance Bonus amount earned by Employee with respect to
each Year. The maximum Equity Performance Bonus amount that can be
earned by Employee, subject achievement of the Tests set forth above is
as follows:
(i) Year One -- $100,000;
(ii) Year Two -- $185,000; and
(iii) Year Three -- $215,000.
In order to earn any of the Equity Performance Bonus amounts with
respect to a particular Year (the "Base Year"), Employee must be
employed by Employer at the end of the Base Year in question. The
shares of common stock earned by Employee with respect to the Base Year
shall be issued to Employee immediately following the determination of
the Equity Performance Bonus amount for the applicable year (and
Employee shall be entitled to make an election under Section 83(b) of
the Internal Revenue Code, as amended, upon such issuance) pursuant to
three stock certificates of equal amount, with one-third of such amount
(i.e., represented by the first stock certificate) fully earned as soon
as such computation is made by Employer (and such shares are
hereinafter sometimes referred to as the "First Tranche Shares"),
one-third of such amount (i.e., represented by the second stock
certificate) subject to forfeiture back to
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Employer in the event Employee is not employed by Employer (except in
the case of "Permitted Termination") on the first day following the end
of the first full calendar year after the Base Year (the "Second
Tranche Shares"), and one-third of such amount (i.e., represented by
the third stock certificate) subject to forfeiture back to Employer in
the event Employee is not employed by Employer (except in the case of
"Permitted Termination") on the first day following the end of the
second full calendar year after the Base Year (the "Third Tranche
Shares"). "Permitted Termination" shall mean termination of Employee's
employment during the Term (and beyond the Term if Employee remains
employed by Employer) due to any of the following:
(1) death;
(2) "Disability" of Employee (as hereinafter
defined);
(3) Employee's "resignation for good reason"
(as hereinafter defined);
(4) Employee's discharge without cause (as
hereinafter defined);
(5) for any reason following a "Change in
Control," as hereinafter defined; or
(6) the failure by Employer to tender to
Employee either a renewal of this Agreement or a new
employment agreement following the expiration of the
Term, should Employee desire to continue working for
Employer, on terms at least comparable to this
Agreement and after having complied with the terms of
this Agreement (such failure to tender being a
"Nonrenewal Event").
In the event of a Permitted Termination other than a Nonrenewal Event,
all risk of forfeiture of shares represented by certificates held by
Employer shall lapse and Employer shall immediately deliver those
certificates to Employee. Employer shall hold the certificates for the
shares of stock subject to risk of forfeiture, and on the earlier of:
(A) the first day following the applicable anniversary of a Base Year
in which Employee remains in the employ of Employer; or (B) upon the
occurrence of a Permitted Termination, Employer shall release to
Employee all certificates then being held by Employer or otherwise
required to be held by Employer, except in the case of a Nonrenewal
Event. In the event of a Nonrenewal Event, then on the date of
expiration of this Agreement (the "Nonrenewal Event Date"), provided
Employer has failed to tender for Employee's execution either an
extension of this Agreement or a proposed new agreement at least
comparable to this Agreement, one-half of the amount of shares of
Employer common stock issued to Employee and which remain subject to a
risk of forfeiture as of the Nonrenewal Event Date shall have such risk
eliminated and Employer shall immediately deliver the certificates
representing such shares to Employee, and the remaining one-half of the
amount of shares of Employer common stock issued to Employee and the
remaining one-half of the amount of shares of Employer common
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stock subject to risk of forfeiture shall have the risk of forfeiture
lapse on the first anniversary of the Nonrenewal Event Date, at which
time Employer shall immediately deliver the certificates for such
shares to Employee. Should Employee's employment be terminated for any
reason other than Permitted Termination, then all certificates of
Employer shares that were subject to risk of forfeiture shall be
cancelled by Employer and those shares shall be deemed returned to the
treasury of Employer. Each stock certificate issued pursuant to the
terms of this Section 2(d) shall contain Employer's customary
restrictive legend utilized in connection with the private placement of
its shares.
The "Stock Factor Price" (which for purposes of this Agreement
shall take into account any and all appropriate adjustments resulting
from any stock split, stock dividend, reverse stock split or other
subdivision of Employer's common stock) for Year One shall be the
greater of $3.00 per share or the closing price of Employer's common
stock as quoted in the Wall Street Journal on the last business day
immediately preceding the day on which Employer issues a press release
announcing the hiring of Employee (such price per share being the "Base
Amount"). The Stock Factor Price for Year Two shall be one hundred ten
percent (110%) of the Base Amount. The Stock Factor Price for Year
Three shall be one hundred ten percent (110%) of the Stock Factor Price
for Year Two. For example, if the Base Amount is $3.00, then the Stock
Factor Price for Year Two would be $3.30 and for Year Three would be
$3.63. To illustrate a computation based on the foregoing, if the Base
Amount for Year One is $3.00 and Employer achieves one hundred thirty
percent (130%) of Budget on the PTI and EQPS Tests but only eighty
percent (80%) of Budget on the New Benchmark, then for Year One,
two-thirds of the maximum Equity Performance Bonus amount would be
earned (i.e., $66,666.66) and based upon the Stock Factor Price of
$3.00, Employee would be entitled to a restricted stock grant of
22,222.22 shares of common stock in three certificates of 7,407.41
shares each (rounded), with the first certificate to be held by
Employee and not subject to any risk of forfeiture, the second
certificate to be held by Employer, to be released on January 1, 2005,
provided Employee is still employed by Employer, and if not, then such
certificate will be cancelled, and the third stock certificate to be
held by Employer to be released on January 1, 2006, provided Employee
is still employed by Employer, and if not, then such certificate will
be cancelled, and provided further that if Employee ceases employment
due to a Permitted Termination prior to January 1, 2006, then except as
applicable pursuant to a Nonrenewal Event, any stock certificates not
previously released to Employee shall be immediately released to
Employee and the shares represented by such certificates shall no
longer be subject to a risk of forfeiture.
(e) Put Right. In order to provide a measure of liquidity to
address potential income tax issues, Employee shall have a limited put
right for up to all of any Base Year's First, Second and/or Third
Tranche Shares issued to Employee pursuant to Section 2(d) hereof as
set forth below. For a period of sixty (60) days commencing two hundred
(200) days following:
(i) the date of issuance of the shares of common
stock of Employer corresponding to the Equity Performance
Bonus amount with respect to a particular Year in the case of
any First Tranche Shares; and
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(ii) subject to the limitations set forth below, the
date on which any Base Year's Second and/or Third Tranche
Shares are no longer subject to any risk of forfeiture
pursuant to Section 2(d), in the case of any Second and/or
Third Tranche Shares, as the case may be.
Employee shall have the right to require Employer to purchase (the
"Put"), at a price equal to the closing price of Employer's common
stock on the last business day immediately prior to the effective date
of the Put, that portion of First, Second and/or Third Tranche Shares,
as the case may be, as necessary to cover the "Tax Deficiency." The Tax
Deficiency shall be an amount equal to the sum of:
(1) forty percent (40%) of the fair market
value of the shares of Employer common stock issued
to Employee pursuant to the Equity Performance Bonus
with respect to the applicable Year which are not
subject to risk of forfeiture or for which Employee
files a Section 83(b) election to recognize as income
with respect to such Year; plus
(2) forty percent (40%) of the fair market
value of any shares of Employer common stock which
had been issued to Employee in a prior Year subject
to risk of forfeiture, where the risk of forfeiture
has lapsed during such Year and which shares were not
subject to a prior Section 83(b) election; minus
(3) sixty percent (60%) of the Cash Bonus
Amount for such Year.
For example, if for Year One one hundred thirty percent (130%) of
Budget was achieved, the Stock Factor Price was $3.00, the Cash Bonus
Amount was $50,000 and on the date of issuance of 33,333.33 shares per
the Equity Performance Bonus, the stock had a fair market value of
$6.00 per share at issuance, and Employee made a Section 83(b) election
with respect to all of said shares, then forty percent (40%) of
$200,000 (i.e., $80,000) would be the estimated tax with respect to the
Equity Performance Bonus, and Employee would be entitled to Put to
Employer up to $50,000 of common stock at a price equal to the closing
price of Employer's common stock for the last business day immediately
prior to the Put (i.e., $80,000 minus sixty percent (60%) of the
$50,000 of the Cash Bonus Amount). Notice of intent to exercise of each
Put must be delivered by Employee to Employer not less than four (4)
business days prior to the date upon which said Put shall take place.
(f) Capital Events Performance Bonuses. If during the Term,
one of the events set forth below occurs, Employee shall in each such
instance be entitled to, in addition to any other bonus Employee may be
entitled to herein, a bonus ("Capital Events Performance Bonus") as set
forth below:
(i) Cendant Events. There are three existing
agreements with Cendant Corporation and/or its affiliates on
the one hand and Employer and/or its affiliates on the other
hand (collectively, the "Cendant Agreements"):
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(1) Development Agreement dated as of
September 30, 2000 by and among AmeriHost Properties,
Inc. ("API"), AmeriHost Inn Franchising, Inc.
("AIFI"), AmeriHost Management, Inc. ("AMI"),
AmeriHost Development, Inc. ("ADI"), Cendant Finance
Holding Corporation ("CFHC") and AmeriHost Franchise
Systems, Inc. ("AFSI");
(2) Asset Purchase Agreement dated as of
August 17, 2000 by and among Cendant Corporation,
CFHC, API, AIFI, AMI and ADI; and
(3) Royalty Sharing Agreement dated as of
September 30, 2000 by and among API, CFHC and AFSI.
In the event during the Term, Employer (either directly or
through its affiliates named in the Cendant Agreements or any
affiliated assignee) consummates a capital transaction
pursuant to which one or more of the Cendant Agreements are
assigned, conveyed or terminated, generating gross proceeds to
Employer less any expenses directly related to the transaction
("Net Proceeds") of $31,000,000 or more, then Employee shall
be entitled to a bonus ("Cendant Event Bonus", payable within
five (5) days following receipt of the Net Proceeds by
Employer or its affiliates, equal to two percent (2%) of the
amount of Net Proceeds collected in excess of $31,000,000 up
to $35,000,000; plus five percent (5%) of the amount of Net
Proceeds collected in excess of $35,000,000 up to $40,000,000;
plus six percent (6%) of the amount of Net Proceeds collected
in excess of $40,000,000. Employer shall be deemed to receive
all Net Proceeds under this Section 2(f)(i) on the date of the
closing of the transaction that is the subject of this Section
2(f)(i). To the extent that the Cendant Agreement Net Proceeds
are paid in whole or in part in form of consideration other
than cash (e.g., stock), then Employee's bonus applicable to
such transaction shall be payable at the same time and
pursuant to the same forms and/or percentages of consideration
as is otherwise paid to Employer and/or to the other
shareholders, as the case may be, in connection with the
transaction.
(ii) Sale Event. In the event during the Term
Employer in a single transaction or in a series of related
transactions with the same buyer over one hundred eighty (180)
days or less consummates the sale of all or substantially all
of its assets or a merger into another corporation or the sale
of not less than one hundred percent (100%) of its outstanding
common stock to a new purchaser, and as a result of such
transaction, the net proceeds after adjustment as set forth
below, exclusive of assumption of debt or other liabilities
and exclusive of payoff of debt or other liabilities ("Capital
Event Net Proceeds") exceeds $50,000,000, then Employee shall
be entitled to a bonus ("Sale Event Bonus"), payable no later
than five (5) days following the closing of the event in
question, equal to five percent (5%) of the Capital Event Net
Proceeds paid to Employer or its
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shareholders in excess of $50,000,000 up to $60,000,000, plus
seven percent (7%) of the Capital Event Net Proceeds paid to
Employer or its shareholders in excess of $60,000,000 up to
$70,000,000 plus ten percent (10%) of the Capital Event Net
Proceeds paid to Employer or its shareholders in excess of
$70,000,000. The Capital Event Net Proceeds shall be reduced
dollar-for-dollar to the extent of any cash equity infusion
made to Employer during the Term and shall be increased dollar
for dollar to the extent of any stock redemptions by Employer,
exclusive of redemptions of shares bought by Employer from
Employee. To the extent the Capital Event Net Proceeds are
paid in whole or part in the form of consideration other than
cash (e.g. stock), then Employee's bonus applicable to such
transaction shall be payable at the same time and pursuant to
the same forms and/or percentages of consideration as is
otherwise paid in connection with the transaction. Employer
shall be deemed to receive all Capital Event Net Proceeds
under this Section 2(f)(ii) on the date of closing of the
transaction that is the subject of this Section 2(f)(ii). For
example, in the event the Capital Event Net Proceeds were
$63,000,000, and on January 2, 2003, there was a $1,000,000
equity infusion into Employer, then the bonus would be
$640,000, computed off a $62,000,000 base (i.e., $63,000,000
reduced by $1,000,000 equity infusion) and would equal five
percent (5%) of the first $10,000,000 plus seven percent (7%)
of the next $2,000,000.
(iii) Bulk Sale of Hotels. In the event that during a
Year while Employee is employed, Employer engages in the bulk
sale of fifteen (15) or more hotels to a single purchaser
("Bulk Sale"), then Employer shall, within sixty (60) days
from such sale, compute the gain from such sale in accordance
with GAAP and determine the pretax income from such event
("Bulk PTI") and shall also subtract from the Bulk PTI the
amount of federal and state income tax payable by Employer as
a result of such bulk sale for the Year in question based upon
the applicable tax rates to Employer for such Year and add the
amount of deferred Cendant fees such Bulk Sale creates (the
amount of Bulk PTI as adjusted for such taxes and deferred
Cendant fees being the "Bulk Stockholder Equity
Appreciation"). In the event a New Benchmark is added to this
Agreement, Employer shall also quantify the impact that the
Bulk Sale shall have upon the New Benchmark as well, and such
amount is hereinafter referred to as the "New Benchmark
Amount." The "Average Bulk PTI" shall be the Bulk PTI divided
by the number of hotels subject to the Bulk Sale, and the
"Carryover Bulk PTI" shall be the Average Bulk PTI multiplied
by the number of hotels sold in the Bulk Sale in excess of
thirteen (13). The "Average Bulk Stockholder Equity
Appreciation" shall be the Stockholder Equity Appreciation
divided by the number of hotels subject to the Bulk Sale, and
the "Carryover Bulk Stockholder Equity Appreciation" shall be
the Average Bulk Stockholder Equity Appreciation multiplied by
the number of hotels sold in the Bulk Sale in excess of
thirteen (13). The "Average New Benchmark Amount" shall be the
New Benchmark Amount divided by the number of hotels subject
to the Bulk Sale, and the "Carryover New Benchmark Amount"
shall be the New Benchmark Amount multiplied by the number of
hotels sold in the Bulk Sale in excess of thirteen (13).
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In the event of a Bulk Sale during a Year, Employee
shall be permitted to carry back and roll forward the amounts
(each a "Carryover Amount") of (i) Carryover Bulk PTI (to be
applied as a credit toward achieving the PTI Test), (ii)
Carryover Bulk Stockholder Equity Appreciation (to be applied
as a credit toward achieving the EQPS Test) and (iii)
Carryover New Benchmark Amount (to be applied as a credit
toward achieving the New Benchmark Test) in excess of their
respective current Year one hundred thirty percent (130%) test
maximums to the next Year, but not beyond such next Year and,
to the extent that with respect to such Year Employer fails to
meet one hundred thirty percent (130%) of Budget with respect
to any of the three Tests, then the carried forward amount
shall be added to the PTI, EQPS or New Benchmark Test, as the
case may be, until the maximum one hundred thirty percent
(130%) of Budget has been met (and the Carryover Amount to
such category to be reduced dollar-for-dollar to the extent
applied), with any remaining Carryover Amount per category to
be carried back and applied in a similar manner as necessary
until one hundred thirty percent (130%) of Budget is met with
respect to the applicable Test, first to the Year immediately
preceding the Year in which the Bulk Sale occurred (if any)
and to the extent of any remaining unused Carryover Amount,
next to the next preceding Year, to the extent one hundred
thirty percent (130%) of Budget in the applicable category was
not met. Carryover Amounts cannot be applied in a category
other than the Test to which they pertain and in no event will
carry forwards of Carryover Amounts exceed one (1) Year (to
the extent they cannot be used in the Year in which a
Carryover Amount is carried forward, then such amounts shall
be applied to the Tests in the preceding Years as described
above).
If a Carryover Amount is applied to a prior Year, it
shall not be treated toward the issuance of additional stock
in or with respect to that prior Year, but rather as a
measurement test for the issuance of additional stock during
the current Year in which the carryback computation is being
made (the "Computation Year"). To the extent the Carryover
Amount is applied to a prior Year, to the extent it would have
resulted in an increased attainment of a Test that was not
fully met beforehand (e.g., if PTI was ninety percent (90%) of
Budget in Year Two and the Carryover Amount of Bulk Sale PTI
brings this up to one hundred thirty percent (130%) of
Budget), then Employer shall issue an additional Cash Bonus
and Equity Performance Bonus amount during the Computation
Year with respect to the amount of additional shares that
would have been issued in the prior Year had the Carryover
Amount been generated in that prior Year, based upon the Stock
Price Factor in effect for the Computation Year. In the case
of a
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carry forward of the Carryover Amount, the Stock Factor Price
to be used shall be the Stock Price Factor in effect for the
Year into which the Carryover Amount was carried forward; the
resultant additional shares issuable with respect to such
events outlined above are hereinafter referred to as the
"Carryover Shares." An additional Put right shall exist for
the Carryover Shares (the pricing and mechanics of such Put to
be applied in the same manner as described in Section 2(e)),
with such Put effective for sixty (60) days commencing two
hundred (200) days following the date of issuance of the
Carryover Shares. The Carryover Shares shall be deemed issued
promptly following computation of the Carryover Shares amount.
To illustrate the foregoing, if in Year Three after hitting
one hundred thirty percent (130%) of Budget for PTI, the
remaining PTI Carryover Amount is $1,000,000, and in Year Two
Employer had three (3) Tests and achieved one hundred ten
percent (110%) of Budget for PTI and an additional $1,000,000
of PTI would bring Employer to one hundred twenty percent
(120%) of Budget, then the carryback of such $1,000,000 would
result in twenty-five percent (25%) multiplied by thirty-three
and 33/100 percent (33.33%) of the aggregate Cash Bonus and
Equity Performance Bonus for Year Two, due to the impact on
the PTI Test, and the Carryover Shares so generated shall be
issued in Year Three promptly following such computation,
evidenced by three equal stock certificates, with the first
such certificate not subject to risk of forfeiture and the
second and third certificates subject to risk of forfeiture
(except in the case of Permitted Termination) lapsing on
January 1, 2006 and January 1, 2007, respectively.
Should a Bulk Sale of hotels occur during the Term and should Employee
have achieved one hundred thirty percent (130%) of Budget with respect
to all applicable Tests during Year One, Year Two and Year Three of
this Agreement, then the Board shall give due consideration toward the
possibility (but not the obligation) of awarding an additional bonus to
Employee as a result of such achievements, in its sole and absolute
determination. The parties agree that if a capital transaction pursuant
to Section 2(f)(i) occurs during the Term, then the computations and
methodology described in this Section 2(f)(ii) shall be re-determined
by the Board to provide a reasonable comparable adjusted basis of
computation to take into account the impact of such capital transaction
(and appropriate protections to ensure Employee is not rewarded a
second time for the proceeds of the Cendant Event), after due
consultation with Employee. Such computation shall take into
consideration the value of the assets of Employer exclusive of the
value attributable to the Cendant Event proceeds, and shall take into
consideration current estimates of value, but need not necessarily be
tied to any particular formula or methodology.
Notwithstanding anything to the contrary contained in this
Agreement, Employer and its shareholders shall be under no obligation
to accept any proposed transaction which would give rise to a bonus
pursuant to this Section 2(f) and Employer shall have
11
no liability to Employee for failing to accept, approve or consummate
any such transactions for any reason whatsoever.
(g) Purchase Rights. Employee shall have the right to purchase
up to 75,000 shares of common stock of Employer (the "Purchase Right
Shares") for a period of thirty (30) days from January 7, 2003, at a
purchase price per share equal to the greater of the Base Amount or the
closing price of Employer's common stock as quoted in the Wall Street
Journal for January 6, 2003 or, if no stock transfer occurred on such
date, the closing price as quoted aforesaid on the next prior day in
which Employer's common stock traded on the public markets ("Start Date
Price"). To the extent Employee has not purchased all of the Purchase
Right Shares within said thirty (30) day period, then for a period of
thirty (30) days thereafter (i.e., lapsing at the end of the sixtieth
(60th) day following January 7, 2003) to purchase any remaining
Purchase Right Shares at a price per share equal to the greatest of the
Start Date Price, the Base Amount, $3.25 per share or the average
closing price of Employer's common stock as quoted in the Wall Street
Journal for the thirty (30) calendar days preceding the date on which
the notice of exercise of purchase of Purchase Right Shares is
delivered to Employer, shares are purchased. In order to exercise the
purchase rights contained in this Section 2(f), Employee must tender to
Employer written notice of exercise specifying the number of shares he
wishes to purchase together with good funds (in the form of cashier's
or certified check, wire transfer or other form of payment acceptable
to the Board) within the applicable thirty (30) day period, which
notice must be delivered at least four (4) business days prior to the
scheduled stock purchase. Employer shall issue and deliver the
certificates for all shares purchased per this Section 2(g) promptly
following such purchase and such certificates shall contain Employer's
customary restrictive legend for privately issued shares.
3. Duties and Responsibilities. During his employment, Employee shall
be employed as president and chief executive officer of Employer. If elected,
Employee shall serve as a Board member of Employer and such affiliated entities
of Employer (including but not limited to direct and indirect subsidiaries) as
the Board may designate from time to time. Employer shall nominate and recommend
Employee to serve on Employer's Board during the period of Employee's employment
hereunder (for no additional compensation). Employer shall fill the Board
vacancy (created by the resignation of Michael Holtz) with Employee, such action
to be effective as of January 7, 2003. In the event Employee is no longer
president and chief executive officer of Employer, upon request of Employer's
Board he will resign as a member of the Board and of the boards of directors of
the Employer's subsidiaries and affiliated entities. Employee agrees to devote
his best efforts to the diligent, faithful discharge of his duties hereunder.
Employee agrees over the course of each calendar year during the Term to spend a
majority of his regular work week time working from Employer's headquarters
(with time spent traveling on Employer business to be deemed time working from
Employer headquarters for purposes hereof) unless otherwise directed by the
Board. Employee agrees to relocate his residence to the Chicagoland area within
twenty-four (24) months following the date hereof (Employer's sole remedy for
the breach by Employee of which shall be the right to terminate Employee's
employment pursuant to Section 6(a)(viii)).
12
Employer shall PAY UP to $20,000 to Employee AS AN EXPENSE
------ -------------
REIMBURSEMENT FOR [on execution of this Agreement as a cash advance to be
- -----------------
applied against ("this language deleted")] relocation expenses (including but
not limited to the cost of maintaining a rental apartment pending permanent
relocation and cost of commuting pending permanent relocation to Chicago) to be
incurred by Employee in relocating to the Chicagoland area. Effective following
Employee's permanent relocation to the Chicagoland area, Employer shall
reimburse Employee by up to an additional $30,000 to cover any relocation
expenses incurred by Employee and not covered by the initial $20,000 payment, to
the extent Employee provides proper documentation evidencing such additional
expenditures. [Should Employee not deliver receipts demonstrating relocation
expenses totaling the initial $20,000 through the date of termination of
Employer's employment, Employee shall be liable to Employer for the amount the
advance exceeds documented expenses, and Employer shall be entitled to set off
such sum against any monies owing from Employer to Employee. ("this language
deleted")]
The expenditure of reasonable amounts of time by Employee for the
making of passive personal investments, the conduct of private business affairs
and charitable and professional activities shall be allowed, provided such
activities do not materially interfere with the services required to be rendered
to Employer hereunder and do not violate the noncompetition provisions set forth
in Section 8 below. If the Board determines that any such activity engaged in by
Employee is detrimental to the best interests of Employer, he will discontinue
such activity within thirty (30) days after written notice from the Board.
Employee shall be entitled to serve on up to two charitable organization boards
of directors and on up to two industry (not for profit) boards of directors.
Employee shall not be permitted to serve on any other boards of directors or
boards of advisors during the Term, absent the prior written consent of Employer
which may be withheld for any reason.
4. Expenses and Fringe Benefits. During the Term, Employee shall be
reimbursed for his reasonable business-related expenses incurred for the benefit
of Employer in accordance with Employer's policies governing such reimbursement
in effect from time to time. Such expenses shall include, but shall not be
limited to, travel, lodging away from home, entertainment and educational
expenses incurred for the purpose of maintaining or improving Employee's
professional skills. Employer shall maintain (effective following completion of
physical and insurer processing) a term life insurance policy from an insurance
company with an AM Best rating of A or better, on Employee's life, with a death
benefit in the amount of $1,500,000, naming Employee's designees as beneficiary
for the Term; provided, however, to the extent that Employee is uninsurable on
commencement of this Agreement, Employer shall have no obligation to provide
such insurance if Employee is uninsurable. To the extent Employee is "rated" so
that the premiums are higher than what they would be in the event Employee were
in perfect health, then the death benefit of such policy shall be reduced to the
amount of insurance that is purchasable with the premium amount that would have
been payable had Employee been in perfect health. Employee shall also be
entitled to use of a vehicle to be provided by Employer of a quality comparable
to that provided to other senior executives of Employer, and reimbursement for
the cost of maintenance, repair, insurance and gasoline with respect to such
vehicle. Employee shall be entitled to such other fringe benefits as are
commonly provided to senior executives of Employer (except to the extent that it
is of the same category of benefit already expressly provided for under this
Agreement, such as equity participation). With respect to any expenses which are
reimbursed by Employer to Employee, Employee shall account to
13
Employer in sufficient detail to entitle Employer to a federal income tax
deduction for such reimbursed item if such item is deductible.
5. Employee Benefit Plans; Vacation. Employee shall be entitled to
participate in any plans maintained by Employer relating to retirement, health,
disability and dental insurance and other employee benefits in accordance with
their terms and similar to other senior executives of Employer; provided,
however, that this provision shall not be construed to require Employer to
establish or maintain any such plans. Employee at his option may elect to not be
covered by Employer's health and/or dental plans, in which event Employer shall
pay to Employee or his alternate care provider(s) (as Employee shall designate)
subject to applicable withholding, if any, the cash equivalent to what Employer
would have paid on such plans for Employee and his family had Employee elected
to be covered under such plans. Employer shall be able to offset any disability
payments made to Employee with respect to any disability insurance policy
provided by Employer against any base salary or severance obligations of
Employer hereunder. Employee shall be entitled to four (4) weeks' vacation
during each Year; such vacation time must be taken during the Year or it lapses
and Employee shall have no right to payment for any unused vacation except as
otherwise provided in this Agreement. Employee shall be entitled to participate
in Employer's 401(k) Plan.
6. Termination.
(a) Employee's employment shall terminate upon the happening
of any of the following events:
(i) upon Employee's death;
(ii) upon Employee's permanent "Disability" (as used
herein permanent "Disability" shall have the same meaning as
set forth in the Employer's disability insurance policy which
shall be in effect for Employee as of the date of commencement
of employment);
(iii) by reason of the expiration of the Term,
provided that following the expiration of the Term, should
Employee remain in the employment of Employer and not have
executed an extension of this Agreement or a new employment
agreement, Employee shall remain an "at will" employee of
Employer, subject to the ongoing obligations set forth in
Section 8 below;
(iv) at Employer's option, upon sixty (60) days'
prior written notice to Employee;
(v) at Employee's option during the "Change in
Control Period" as such term is defined in Section 7(b) below
in the event Employer or the acquirer requires Employee to
renegotiate his employment arrangement for reduced
compensation or otherwise reduces amounts payable to Employee
hereunder or accelerates the Term of this Agreement;
(vi) at Employee's option, upon sixty (60) days'
prior written notice to Employer;
14
(vii) at Employer's option in the event of an act by
Employee defined in Section 6(b) as a "discharge for cause;"
(viii) at the Employer's option in the event Employee
fails to relocate in accordance with his obligation set forth
per Section 3 above; or
(ix) at Employee's option in the event of
"resignation for good reason." The term "resignation for good
reason" or "good reason" means the following:
(1) the failure of Employer within ten (10)
days after written notice by the Employee to Employer
to make any undisputed payment due to Employee
hereunder; should Employee and Employer in good faith
disagree upon the amount of any required payment
hereunder, then Employer shall be deemed to have
satisfied its obligations if it shall have made the
undisputed amount payment and once the disputed
amount is determined (either by agreement,
arbitration or judicial proceeding), Employer shall
be obligated to pay said amount within ten (10) days
of such resolution;
(2) without the express written consent of
Employee, any material and adverse demotion by
Employer in Employee's function, duties, or
responsibilities (including further relocation
outside the Chicagoland area) not generally
consistent with those contemplated in this Agreement,
which is not rescinded within thirty (30) days after
Employee has given Employer written notice of such
change which notice specifies in detail the change;
(3) any material decrease in Employee's base
salary, life or disability insurance coverage or
benefits payable to Employee or to which he is
entitled other than a decrease in benefits which is
part of a general decrease in benefits provided or
payable to senior executives;
(4) the failure of Employer to nominate and
recommend Employee to the Employer's Board of
Directors as required per Section 3 above; and
(5) any material failure (other than a
failure to make payments) by Employer to comply with
any of the provisions of this Agreement, which change
or failure, as the case may be, continues unremedied
for thirty (30) days after Employee has given
Employer written notice of such change or failure
which notice specifies in detail the change or
failure, as the case may be.
(b) Upon termination of Employee's employment pursuant to
Sections 6(a)(i), 6(a)(ii), 6(a)(iii), 6(a)(vi), 6(a)(vii) or
6(a)(viii) and except for the acceleration of Equity Performance Bonus
payments and Carryover Share issuances to Employee in the event of a
Permitted Termination (subject to the limitation contained in Section
2(d) for "Nonrenewal Events", Employee shall be entitled to receive
only the compensation 15
accrued but unpaid and vacation (and reimbursements due) as of the date
of termination and any other benefits accrued to him under the plans
mentioned in Section 5 above. As used herein, "discharge for cause"
shall be deemed to have occurred whenever occasioned by reason of:
(i) the material breach of any of Employee's
covenants under this Agreement, following the giving of thirty
(30) days written notice to Employee that he has violated this
provision and the failure, inability or unwillingness of
Employee to remedy the situation detailed in this Section
6(b)(i) within said thirty (30) day period, and provided
further that such breach is capable of cure;
(ii) conviction of a felonious act on the part of
Employee;
(iii) one or more actions by Employee involving
serious moral turpitude; or
(iv) Employee's willful misconduct with respect to
the Employer in such manner as to bring substantial and
material discredit or harm upon Employer, following the giving
of thirty (30) days' written notice to Employee that he has
violated this provision and the failure, inability or
unwillingness of Employee to remedy the situation detailed in
this Section 6(b)(iv) within said thirty (30) day period.
In establishing whether a discharge for cause shall have occurred, the
standard for judgment shall be the level of conduct by other comparably
situated executives.
7. Effects of Termination.
(a) Upon termination of Employee's employment pursuant to
Section 6(a)(iv), Section 6(a)(v) or Section 6(a)(ix), Employee shall
be entitled to the following severance benefits:
(i) Base salary for the remaining Term (as if such
termination had not occurred) but for no less than twelve (12)
months and no greater than twenty-four (24) months (the
"Severance Period") at the then current rate to be paid from
the date of termination until paid in full in accordance with
Employer's usual practices, including the withholding of all
applicable taxes, and amounts accrued pursuant to Section 6(b)
through the date of termination of Employee's employment; and
(ii) Continued provision during the Severance Period
of Employee's health and medical insurance; provided, however,
Employee (or, in the event of his death, his spouse) may
exercise whatever rights he may have under the Consolidated
Omnibus Benefit Reconciliation Act of 1985, as amended
("COBRA") at their then current levels, including health
insurance.
(b) The "Change in Control Period" shall mean the twelve (12)
month period following the occurrence of any of the following events
(each a "Change-in-Control"):
16
(i) all or substantially all of the assets of
Employer or any entity directly or indirectly controlling
Employer being sold to a nonaffiliated party;
(ii) Employer or any entity directly or indirectly
controlling Employer merging, consolidating or otherwise
combining with a nonaffiliated party or parties whereby
following such event the nonaffiliated party or parties
beneficially own in excess of fifty percent (50%) of the
voting securities of Employer; or
(iii) in excess of fifty percent (50%) of the
outstanding common shares or other equity interests of the
Employer or any entity directly or indirectly controlling
Employer being sold to a nonaffiliated party.
The foregoing definition shall not include a Change-in-Control which
results from any buyout headed by one or more members of senior
management of the Employer including Employee or any entity directly or
indirectly controlling Employer, which entity includes Employee.
(c) Immediately prior to a Change-in-Control, all stock grants
earned by Employee pursuant to Section 2(d) but subject to risk of
forfeiture shall become irrevocable and no longer subject to risk of
forfeiture and Employee shall be entitled to immediate delivery of the
stock certificates therefore, to the event they remain in the
possession or control of Employer.
(d) In addition to the other rights afforded Employee in the
event of a Change-in-Control, if a Change-in-Control results in the
shareholders of Employer continuing to be shareholders of the acquiring
company but with an aggregate ownership directly and indirectly of
thirty percent (30%) or less of the equity of the acquiring company,
Employee shall have the right to sell and the acquiring company shall
have the obligation to purchase all of Employee's shares in Employer
then owned by Employee for cash at the per share value paid to all
shareholders. Employee, in order to exercise the rights per this
Section 7(d), must give notice of his intent to sell his shares
pursuant to this Section 7(d) not later than five (5) days prior to the
close of any transaction, and the acquiring company shall effectuate
such purchase simultaneously with the close of the Change-in-Control
transaction. The parties shall reasonably cooperate to effectuate the
documentation required by this Section 7(d).
(e) In the event Employee is entitled to severance payments
hereunder, he shall be under no obligation to mitigate his damages
resulting from his termination of employment hereunder during the
Severance Period; however, to the extent Employee earns compensation
during the Severance Period, Employer shall be entitled to set off
fifty percent (50%) of each such compensation payment earned by
Employee against the severance payments otherwise payable hereunder;
provided however, in no event shall Employee following such set off be
entitled to receive less than fifty percent (50%) of the severance
payments called for hereunder. Employee agrees to notify Employer on a
monthly basis of all such compensation payments earned during the
Severance Period and to permit Employer to review his books and records
related to the foregoing.
17
8. Restrictive Covenants.
(a) Acknowledgment of Damages Resulting from Employee's
Competition with Employer. Employee understands and acknowledges that
Employer and its related entities and affiliates are engaged in the
business of owning, operating, developing, building, selling, financing
and franchising moderately priced hotels and providing all goods and
services ancillary thereto (collectively, the "Business"), and that
because of his position with Employer, he has or will obtain:
(i) intimate knowledge of the Business including, but
not limited to, knowledge of "Confidential Information" (as
hereinafter defined); and
(ii) knowledge of and relationships with the
customers, suppliers and franchisors used in connection with
the Business of Employer and its related entities and
affiliates.
Employee agrees and acknowledges that such knowledge, access and
relationships are such that if Employee were to compete with Employer
or its related entities and affiliates engaged in the Business, by
engaging in the Business within the United States of America at any
time during the one (1) year period from the date of Employee's
termination of employment with Employer (if the restrictions contained
in this Section 8(b) are applicable at such time), Employer or its
related entities and affiliates would suffer harm, and the benefits
that the parties bargained for under this Agreement would be severely
and irreparably damaged. For purposes of this Section 8(a), Employee
shall be deemed "engaging in the Business" only if Employee obtains
ownership of more than five AmeriHost Inn hotels or secures a
Competitive Position (as defined below). Employee agrees that the
covenants contained in this Section 8 are reasonable and necessary to
protect the confidentiality of the Trade Secrets, and other
Confidential Information concerning Employer acquired by Employee. For
purposes of this Agreement, "Trade Secret" shall be as defined by the
Illinois Trade Secrets Act. The provisions of this Section 8 shall be
interpreted so as to protect those Trade Secrets and Confidential
Information, and to secure for Employer the exclusive benefits of the
work performed on behalf of Employer by the Employee under this
Agreement, and not to unreasonably limit his ability to engage in
employment and consulting activities in non-competitive areas which do
not endanger Employer's legitimate interests expressed in this
Agreement.
(b) Covenant Not to Compete with Employer. Employee agrees
that, during the Term and for a period of one (1) year following the
termination of Employee's employment by Employer (subject to the
provisos contained at the end of this Section 8(b)) for whatever
reason, with or without "cause" or otherwise, Employee will not,
directly or indirectly, expressly or tacitly, for himself or on behalf
of any entity anywhere within the United States:
(i) act as an officer, manager, advisor, executive,
controlling shareholder, or consultant to any business in
which his duties at or for such business include oversight of
or actual involvement in providing (A) services
18
which are competitive with the Business of Employer (including
any of its related entities or affiliates), or (B) services or
products being provided or which are being produced or
developed by Employer or its related entities and affiliates,
or are under active investigation by Employer or its related
entities and affiliates at the time of termination of his
employment, provided that such services or products relate
directly to Employer's Business; or
(ii) become employed by such an entity in any
capacity which would require Employee to carry out, in whole
or in part, the duties Employee has performed for Employer or
its related entities and affiliates which are competitive with
the Business of Employer (including any of its related
entities or affiliates) or services or products being provided
or which are being produced or developed by Employer its
related entities and affiliates, or are under active
investigation by Employer or its related entities and
affiliates at the termination of his employment, provided that
such services or products relate directly to Employer's
Business.
Notwithstanding anything to the contrary contained herein, the
restrictive covenants contained in this Section 8(b) shall not apply in
the event of discharge of Employee without cause, resignation for good
reason or following the expiration of this Agreement, unless in such
event Employer continues to pay Employee the amounts set forth in
Section 7(a) for a one year period the base salary then in effect on
the date of termination of employment; provided further that
notwithstanding anything to the contrary contained herein, any
employment of Employee or provision of services by Employee following
termination of employment by Employer, its related entities or
affiliates to any hotel franchisor, hotel owner or hotel operator other
than to:
(1) any division of a franchisor of hotel
brands listed on Exhibit B ("Brands") solely devoted
to one or more of such Brands;
(2) any hotel owner or operator of more than
five (5) AmeriHost Inn hotels; or
(3) any hotel owner or operator whose
portfolio of hotels is comprised of more than fifty
percent (50%) of the hotel Brands listed on Exhibit B
(such a position described in (1), (2) and (3) above
sometimes referred to as a "Competitive Position"),
shall not be deemed to constitute a violation of the restrictive
covenants contained in this Section 8(b).
The terms of Exhibit B are incorporated by reference herein and made a
part hereof.
(c) Non-Solicitation of Customers. During Employee's
employment with Employer, Employee shall not, directly or indirectly
without Employer's prior written consent, contact or solicit any
customers or clients of Employer; with whom Employer or its related
entities and affiliates have solicited business within the last twelve
(12) months and with whom Employee had material contact ("Customer"),
for business purposes
19
unrelated to furthering the Business of Employer or its related
entities. For a period of one (1) year following termination of
Employee's employment with Employer, Employee shall not, directly or
indirectly:
(i) contact, solicit, divert or take away, any
Customer for purposes of, or with respect to, selling a
product or service which competes with the Business of
Employer and its related entities and affiliates; or
(ii) take any affirmative action in regard to
establishing or continuing a relationship with a Customer for
purposes of making, or which directly or indirectly results
in, a sale of a product or service which competes with the
Business of Employer and its related entities and affiliates.
(d) Non-Solicitation of Employees; Financing Sources. During
the Term, and for a period of one (1) year following termination of
Employee's employment with Employer, Employee shall not, directly or
indirectly:
(i) recruit or hire, or attempt to recruit or hire
(as an employee, independent contractor, consultant or
otherwise), any employee of Employer or its related entities
and affiliates who was employed by Employer or its related
entities and affiliates during the Term and who is actively
employed at the time of solicitation or attempted
solicitation; or
(ii) except on behalf of Employer, solicit equity
funding with respect to any hotel project involving any of the
Brands from a source which directly or indirectly through
itself or an affiliate:
(1) has provided $5,000,000 or more of
equity funding to or for the benefit of Employer or
any of its related entities or affiliates (but only
if such amount constitutes greater than fifty percent
(50%) of the equity funding provided by such source
to the Brands at the time of such solicitation); or
(2) has purchased or sold a hotel property
from or to (as the case may be) Employer or any of
its related entities or affiliates (but only if the
purchasing and selling of the Brands comprises
greater than fifty percent (50%) of such source's
business at the time of such solicitation).
(e) Confidentiality. Employee hereby acknowledges and agrees
that during the Term, Employee will have access to Trade Secrets and
Confidential Information of Employer or its related entities and
affiliates. Employee also acknowledges that Employee will not disclose
or use, directly or indirectly, any Trade Secrets Employee obtains
during the course of Employee's employment related to the Business for
thirty (30) months from the date of Employee's termination of
employment with Employer. Employee also recognizes that the services
performed by Employee hereunder, are special, unique and extraordinary
and that by reason of Employee's employment with Employer, Employee
will receive, develop, or otherwise acquire Confidential Information
and, except as required by the pursuit of Employee's duties with
Employer,
20
or as it is authorized in writing by Employer, Employee acknowledges
that Employee will not disclose or use, directly or indirectly, any
Confidential Information related to the Business during the course of
Employee's employment and for a period of thirty (30) months after the
date of Employee's termination. The term "Confidential Information"
shall mean and include any information, data and know-how relating to
the Business of Employer or its related entities and affiliates that is
disclosed to Employee by Employer or known to Employee as a result of
Employee's relationship with Employer and not generally within the
public domain (whether constituting a Trade Secret or not), including
without limitation, all design drawings, engineering and architectural
plans and specifications for AmeriHost Inns, the cost of all components
in the construction of AmeriHost Inns, the terms and conditions of all
contracts to which Employer, its related entities and affiliates are
party (to the extent not in the public domain), including all contracts
with Cendant, Inc., related entities and affiliates, all sites under
consideration for acquisition and/or development by Employer, its
related entities and affiliates and the economics thereof, all product
development and technical data, sales and/or marketing information,
customer account records, payment plans, training and operations
material, memoranda and manuals, personnel records, pricing
information, and financial information concerning or relating to the
Business and/or the Customers, employees and affairs of Employer, or
its related entities and affiliates. "Confidential Information" shall
not include information that Employee can prove (a) was known to him
prior to his receipt of such information from Employer, (b) became
generally publicly known other than by Employee's direct or indirect
act; (c) was rightfully disclosed to Employee by a third party without
restriction; or (d) was independently developed by Employee (and is
supported by written evidence) without use of or access to the
Confidential Information.
(f) In the event the covenants of this Agreement are deemed
overly broad, the parties hereto agree that the covenants shall be
enforced to the extent that they are not overly broad.
9. Equitable Relief. Employee acknowledges that a breach of any
provision of Section 8 above cannot be adequately compensated by damages at law,
and that such a breach would cause Employer irreparable harm. Employer shall be
entitled to temporary and permanent injunctive relief, provided that such
equitable remedies shall be in addition to and not in lieu of other remedies
available at law or in equity to Employer. Notwithstanding anything herein to
the contrary in Section 12 below, Employer shall not be required to seek
arbitration to enforce equitable relief under Section 8 above. Employee agrees
that the duration, geographical field of application and subject matter of
Section 8 above are reasonable in light of all of the facts and circumstances.
10. Unfunded Agreement. Employer's obligations under this Agreement
shall be unfunded, but Employer reserves the right to provide for its liability
under this Agreement in any manner it deems advisable, including the purchasing
of such assets (including insurance policy or policies on Employee's life) as it
may deem necessary or proper, provided, however, that Employee's insurability or
non-insurability shall in no way affect the Employer's obligations pursuant to
this Agreement. Employee, his wife or his widow after his death, or his
designated beneficiaries, personal representatives, heirs, successors and
assigns shall have no claim or rights with respect to, and shall have no
property or equitable interest whatsoever in, any specific funds
21
or assets of Employer and shall only have the status of a general unsecured
creditor with respect to Employer hereunder.
11. Directors' and Officers' Insurance. During the Term, Employer
agrees to maintain directors' and officers' liability insurance (with
appropriate tail coverage to the extent the same is available at a reasonable
cost in the good faith discretion of the Board) covering Employee, with minimum
coverage amounts as are reasonable and customary for Employer's Business and
industry in which it operates. The current policy maintained by Employer is
deemed to satisfy the requirements of this Section 11.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Illinois and construed in accordance therewith. Any dispute not covered
by arbitration per the terms of Section 12 below shall be litigated in the state
or federal courts situated in Cook County, Illinois, to which jurisdiction and
venue all parties consent. The parties hereby waive their right to trial by jury
with respect to the adjudication of any dispute regarding this Agreement or the
subject matter hereof.
13. Arbitration.
(a) Any dispute arising out of or relating to this Agreement,
except if Employer seeks equitable relief pursuant to Section 8 above,
shall be submitted to arbitration in accordance with the commercial
rules of the American Arbitration Association ("AAA"), by which each
party will be bound.
(b) If the parties have not agreed during their negotiations
on a single arbitrator to whom the dispute will be submitted, either
party may select an arbitrator and send written notice to the other
party of the selection. The party receiving such notice will have ten
(10) days from the date such party receives such notice of such
selection to select an second arbitrator and send notice of such to the
party who selected the first arbitrator. Failure to select the second
arbitrator and to send timely notice, as provided above, empowers the
arbitrator first selected to resolve the controversy. If both
arbitrators have been duly named, they will as soon as is reasonably
practicable (but within thirty (30) days from the date the latter of
the two arbitrators is named) name a third arbitrator and the matter
shall be resolved by a panel comprised of these three arbitrators. The
provisions of the Federal Rules of Civil Procedure which provide for
discovery shall be applicable to any such arbitration. The parties
agree that such discovery must be completed within six (6) months after
the claim has been filed with the AAA and service on the other party
effected.
(c) Any arbitration proceedings will be conducted in Chicago,
Illinois.
(d) The parties agree to be bound by the decision of the
arbitrator and the decision thereof to be entered into any appropriate
court or other jurisdiction. Unless otherwise provided in this
Agreement, the prevailing party in the arbitration shall be promptly
reimbursed for its reasonable costs and fees (other than attorneys'
fees which shall be paid by the party incurring them) incurred in
connection with the arbitration and shall not be responsible for the
costs of arbitration.
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14. Benefits. This Agreement shall be binding upon Employee, upon his
heirs, executors, administrators, designated beneficiaries, upon anyone claiming
under him or his wife or widow, and upon the Employer and its successors and
assigns.
15. Merger or Sale of Assets. Employer shall not merge or consolidate
with any other entity or sell all or substantially all of its assets unless and
until such other entity or purchaser of assets shall expressly assume Employer's
obligations under this Agreement or Employer has provided an appropriate
alternative arrangement covering its contingent liabilities under this
Agreement, and Employer shall not voluntarily dissolve without first providing
an appropriate arrangement covering its contingent liabilities under this
Agreement.
16. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and:
(a) Delivered in person to the party entitled to notice (in
the case of Employer, if delivered to an executive officer other than
Employee); or
(b) Five (5) days after sent by registered or certified mail,
postage prepaid, or the next business day following deposit with a
national bonded overnight courier via next day service and addressed,
if to Employee, to the principal residence of Employee (as reflected on
Employer's records) or if to Employer, to the principal executive
office of Employer c/o its Chief Financial Officer.
17. Miscellaneous. This Agreement shall constitute the entire agreement
between the parties, and may not be amended, altered, modified or extended
except by written agreement signed by each of the parties hereto. For purposes
of this Agreement, the term "affiliate" shall have the same meaning as construed
under Rule 405 promulgated under the Securities Act of 1933, as amended. This
Agreement supersedes in its entirety any and all prior discussions, term sheets
or other dialogue among the parties, and also supersedes any other prior
agreements or understandings covering the subject matter hereof, either written
or oral, between the parties. Waiver of compliance with any terms or conditions
of this Agreement by either party shall not constitute a waiver of compliance
with the same or any other term or condition upon a subsequent occasion. The
obligations of the parties hereunder shall survive any termination of this
Agreement or any termination of Employee's employment. This Agreement may be
executed in several counterparts, either by photocopy, facsimile or original,
both of which when taken together as a whole shall constitute one valid, legally
binding agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have hereunto set their hands effective
as of the day and year first above written.
EMPLOYER: EMPLOYEE:
ARLINGTON HOSPITALITY, INC., a ---------------------------------
Delaware Corporation JERRY H. HERMAN
Address: 7100 Glenbrook Road
By: Bethesda, MD 20814
----------------------------------------
James B. Dale, Chief Financial Officer
Address: 2355 S. Arlington Heights Road-Suite 400
Arlington Heights, IL 60005
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