EMPLOYMENT AGREEMENT
AGREEMENT by and between Hilton Hotels Corporation, a Delaware
corporation (the "Company"), and Xxxxxxx X. Xxxxxxxxxx (the "Executive"), dated
as of the Commencement Date, as defined below.
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to continue to employ the Executive as President and Chief Executive Officer,
and the Executive desires to continue to serve in that capacity;
WHEREAS, the Executive and the Company entered into an Employment
Agreement dated as of February 1, 1996 (the "Prior Employment Agreement") and a
Change of Control Agreement dated as of January 30, 1996 (collectively with the
Prior Employment Agreement, the "Prior Agreements"), which shall be terminated
and of no further force and effect as of the Commencement Date, except as
provided in Section 14 below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period beginning on the earlier to occur of (i) the
effective date (the "Split Date") of a transaction whereby the Company separates
its gaming operations from its lodging operations (the "Split") and (ii) January
1, 1999 (the "Commencement Date") and ending on July 1, 2005, which shall
automatically renew for periods of one year unless one party gives written
notice to the other, at least 60 days prior to July 1, 2005 or at least 60 days
prior to the end of any one-year renewal period, that the Agreement shall not be
further extended, except as otherwise specifically provided below, (the
"Employment Period"). Notwithstanding the foregoing, if the Split does not
occur on or before June 30, 1999, the Executive shall have the right, upon
written notice to the Company delivered not later than July 31, 1999, to
terminate this Agreement and thereafter neither party shall have any continuing
obligation to the other hereunder (except with respect to the Company's
obligations to compensate the Executive with respect to services performed prior
thereto).
2. POSITION AND DUTIES. (a) During the Employment Period, the
Executive shall continue to be employed as the President and Chief Executive
Officer of the Company and, when applicable, the Company shall cause the
Executive to be reelected as a member of the Board. In his executive
capacities, the Executive shall report to the Board through the Chairman of the
Board. During the Employment Period, no executive of the Company other than the
Executive shall have a direct reporting relationship with the Chairman of the
Board. During the Employment Period, the Executive shall have authority to make
all operating decisions, plan the strategic direction of the Company, and hire,
promote and terminate the employment of all personnel, subject to the direction
of the Board. During the Employment Period, the Executive shall have such
reasonable and customary powers as are generally associated with the positions
of President and Chief Executive Officer, including, without limitation,
authority to expend capital resources of the Company and shall have, subject to
the direction of the Board, authority to fill all management positions.
(b) If, during the Employment Period, Xxxxxx Xxxxxx shall cease
to serve as Chairman of the Board for any reason, the Company shall cause the
Executive thereupon to be elected as Chairman of the Board in addition to the
positions of President and Chief Executive Officer and shall, as Chairman,
report directly to the Board.
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(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote principal attention and time during normal business hours to the business
and affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. Notwithstanding the foregoing, nothing in this
Agreement shall be construed to limit the ability of the Executive, from and
after the Split Date, to provide services to the entity which holds the
Company's gaming operations following the Split. It shall not be considered a
violation of the foregoing for the Executive to (A) serve on corporate, civic or
charitable boards or committees (excluding those which would create a conflict
of interest), (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not materially interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
(d) The Executive's services shall be performed primarily at the
Company's Headquarters in Beverly Hills, California.
3. COMPENSATION. (a) BASE SALARY. During the Employment Period,
the Executive shall receive an annual base salary ("Annual Base Salary") of
$620,000, payable in accordance with the regular payroll practices of the
Company. During the Employment Period, the Annual Base Salary shall be reviewed
for possible increase at least annually, with any increase being at the sole
discretion of the Board or the P&C Committee. Any increase in the Annual Base
Salary shall not limit or reduce any other obligation of the Company under this
Agreement except as described in subparagraph (b) below . The Annual Base
Salary shall not be reduced after any such
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increase, and the term "Annual Base Salary" shall thereafter refer to the Annual
Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the
Executive shall be eligible to receive, for each fiscal year or portion of a
fiscal year ending during the Employment Period, an annual bonus (the "Annual
Bonus") (either pursuant to the Company's annual incentive plan or otherwise)
provided that the Executive shall not receive an Annual Bonus for any fiscal
year the amount of which, together with the Executive's then rate of Annual
Base Salary, would be in excess of $1,000,000. Each Annual Bonus shall be paid
in a single cash lump sum no later than 90 days after the end of the fiscal year
or portion thereof for which the Annual Bonus is awarded, unless the Executive
elects in writing, before the beginning of the fiscal year for which the Annual
Bonus is to be awarded (or at such later date as may be permitted under the
Company's generally applicable policies or procedures), to defer receipt of the
Annual Bonus pursuant to the Company's deferred compensation plan for senior
executives.
(c) OTHER BENEFITS. During the Employment Period: (i) the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs of the Company to at least
the same extent as other senior executives of the Company, provided that in
determining the Executive's participation in any incentive plans the Incentive
Options, as defined below, shall be taken into account; and (ii) the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation, and shall receive all benefits under, all welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life insurance,
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group life insurance, accidental death and travel accident insurance plans and
programs) to at least the same extent as other senior executives of the Company.
(d) EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in carrying out the Executive's duties under this Agreement,
provided that the Executive complies with the generally applicable policies,
practices and procedures of the Company for submission of expense reports,
receipts, or similar documentation of such expenses.
(e) FRINGE BENEFITS AND AIR TRAVEL. During the Employment
Period, the Executive shall be entitled to fringe benefits and perquisites in
accordance with the most favorable plans, practices, programs and policies of
the Company as in effect at the time with respect to other senior executives of
the Company, including, without limitation, the use of an automobile and payment
of related expenses; and first-class travel accommodations on all commercial
carriers for travel related to the business of the Company. The Executive shall
also be entitled to unrestricted, but not exclusive, use of the Company's
aircraft (leased or owned); provided, however, that if the Executive uses the
Company's aircraft for his personal purposes, he shall pay to the Company the
cost of such usage, as determined in accordance with the Company's cost
determination methodology applied to the Company's senior executives with
respect to their personal use of the Company's aircraft.
(f) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to his current office at the Company's Xxxxxxx Hills
Headquarters, and to secretarial and other assistance, at least equal to the
most favorable of such as provided with
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respect to other senior executives of the Company. Without limiting the
generality of the foregoing, the Executive shall at all times have a personal
secretary and a personal assistant.
(g) VACATION. During the Employment Period, the Executive shall
be entitled to four weeks of paid vacation annually.
(h) STOCK OPTIONS: (i) If the Split occurs, on the Split Date,
the Executive shall be granted non-statutory stock options (the "Incentive
Options") under the Company's 1996 Stock Incentive Plan, as amended (the "Stock
Plan) covering 6,000,000 shares of the Company's (but not the gaming company's)
post-Split common stock in tranches of 4,000,000 shares (the "Regular Option")
and 2,000,000 shares (the "Special Option"), respectively. The exercise price
of the shares subject to the Regular Option shall be equal to the closing price
of the Company's common shares on the New York Stock Exchange on the Split Date.
The exercise price of the shares subject to the Special Option shall be equal to
the greater of (i) the closing price of the Company's common shares on the New
York Stock Exchange on the Split Date or (ii) 150% of the closing price of
Hilton Hotel Corporation's common shares on the New York Stock Exchange on July
9, 1998 ratably reduced (in the manner described on Exhibit A hereto) following
the Split so as to reflect that revised July 9, 1998 closing price as if only
the Company's post-Split common shares existed on that date. The grant of the
Incentive Options is subject to obtaining the approval of the amended Stock Plan
by a majority of the shares of common stock of the Company voting at the
shareholders meeting immediately following the date of this Agreement.
Notwithstanding the foregoing, if the Company's shareholders do not approve the
amendment of the Stock Plan, the Executive shall have the right, upon written
notice to the Company delivered not later than July 31, 1999, to terminate this
Agreement and thereafter neither party shall have any continuing obligation to
the other hereunder
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(except with respect to the Company's obligations to compensate the Executive
with respect to services performed prior thereto). As soon as practicable
thereafter, the Company shall register with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, the shares issuable
upon the exercise of the Incentive Options. The Incentive Options shall be
exercisable for 10 years after the Split Date except as otherwise specifically
provided in this Agreement.
The Regular Option shall vest and become exercisable according to the following
schedule if the Executive continues in the employment of the Company through the
applicable vesting date(s), except as otherwise specifically provided herein:
1. 25%: on the first anniversary of the Split Date.
2. 50%: on the second anniversary of the Split Date.
3. 75%: on the third anniversary of the Split Date.
4. 100%:on the fourth anniversary of the Split Date.
The Special Option shall vest and become exercisable on the date that is 9 years
and 9 months following the Split Date; provided, however, that, if, at any time
prior to the fifth anniversary of the Split Date, the closing price of the
Company's common shares on the New York Stock Exchange equals or exceeds 200% of
the closing price of the Company's common shares on the New York Stock Exchange
on July 9, 1998 ratably reduced (in the manner described on Exhibit A hereto)
following the Split so as to reflect that revised July 9, 1998 closing price as
if only the Company's post-Split common shares existed on that date, on each of
any 7 consecutive trading days, all shares under the Special Option shall be
immediately vested and exercisable; and provided further that, in any either,
the Executive continues in the employment of the Company through the applicable
vesting date, except as otherwise specifically provided herein. Notwithstanding
the foregoing, all shares subject to the Regular Option and the Special Option
shall vest and become exercisable upon the occurrence of any of the following
events (each of (A), (B) and (C) below a "Triggering Event"):
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(A) termination of the Executive's employment by the
Company other than for (i) Cause, as defined below or
(ii) non-renewal of the Agreement;
(B) termination of the Executive's employment because of
death or Disability; or
(C) termination of employment by the Executive for Good
Reason, as defined below;
provided that the Special Option shall vest and become (and remain) exercisable
upon a Triggering Event only if Executive does not breach the terms of the
covenants contained in Section 8 below and such vesting and exercisability shall
be part of the consideration for the Executive's undertakings under Section 8.
(ii) If a Triggering Event occurs, any portion of the Incentive
Options that have become vested on or before the date of such Event (including
without limitation, any portion that becomes exercisable due to such Triggering
Event) shall remain exercisable until the earlier to occur of (x) the fifth
anniversary of such date of termination or (y) the tenth anniversary of the
Split Date. All non-vested Incentive Options shall immediately terminate.
(iii) The Executive may assign the right to exercise the Incentive
Options to his spouse, children, grandchildren, or parents of a recipient, to
trusts for the benefit of the Executive's immediately family, to a family
partnership or limited liability company designated by the Executive in which
the Executive's family members are the only partners or shareholders or to an
entity exempt from federal income tax under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
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(iv) The Incentive Options shall be subject to the terms of
the Stock Plan in all respects not described herein.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment and the Employment Period shall terminate automatically
upon the Executive's death during the Employment Period. The Company shall be
entitled to terminate the Executive's employment because of the Executive's
Disability during the Employment Period. "Disability" means that (i) the
Executive has been unable, for a period of 180 consecutive business days, to
perform the Executive's duties under this Agreement, as a result of physical or
mental illness or injury, and (ii) a physician selected by the Company or its
insurers, and acceptable to the Executive or the Executive's legal
representative, has determined that the Executive's incapacity is total and
permanent. The Executive agrees to reasonably cooperate with the Company in
order to obtain its physician's evaluation of the Executive. A termination of
the Executive's employment by the Company for Disability shall be communicated
to the Executive by written notice, and shall be effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
unless the Executive returns to full-time performance of the Executive's duties,
as determined by the Board, before the Disability Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
"Cause" means:
(A) the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
Agreement (other than as a result of physical or mental illness
or injury), after the Board delivers to the Executive a written
demand for substantial performance that specifically identifies
the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties;
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(B) illegal conduct or gross misconduct by the Executive,
in either case that is willful and results in material and
demonstrable damage to the business or reputation of the Company;
or
(C) a breach of the covenants or representations contained
in Section 8.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company shall give
the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Special Board Meeting. The
"Special Board Meeting" means a meeting of the Board called and held
specifically for the purpose of considering the Executive's termination for
Cause, that takes place not less than five and not more than fifteen business
days after the Executive receives the Notice of Termination for Cause. The
Executive shall be given an opportunity, together with counsel, to be heard at
the Special Board Meeting. The Executive's termination for Cause shall be
effective when and if a resolution is duly adopted at the Special Board Meeting,
stating that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in the Notice of Termination for Cause, and such conduct
constitutes Cause under this Agreement.
(c) GOOD REASON. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" means:
(A) the assignment to the Executive of any duties
inconsistent in any material respect (in any respect, following a
Change of Control) with paragraph (a) or, if applicable, (b) of
Section 2 of this Agreement, or any other action by the Company
(other than the Split) that results in a material
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diminution in the Executive's position or authority, duty,
titles, responsibilities, or reporting requirements other than an
action that is not taken in bad faith and is remedied by the
Company within 30 days after receipt of written notice thereof
from the Executive;
(B) any material failure (any failure, following a Change
of Control, as defined below) by the Company to comply with any
provision of Section 3 of this Agreement, other than a failure
that is not taken in bad faith and is remedied by the Company
within 30 days after receipt of written notice thereof from the
Executive;
(C) any requirement by the Company that the Executive's
services be rendered primarily at a location or locations other
than that provided for in paragraph (d) of Section 2 of this
Agreement, other than normal business travel;
(D) any purported termination of the Executive's employment
by the Company for a reason or in a manner not expressly
permitted by this Agreement; or
(E) any failure by the Company to comply with paragraph (c)
of Section 9 of this Agreement.
In addition, following a Change of Control, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Change of Control shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and
the specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be effective
on the fifth business day following the date when the Notice of Termination
for Good Reason is given, unless the notice sets forth a later date (which
date shall in no event be later than 30 days after the notice is given).
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(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company at least
10 business days' advance written notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the
date of the Executive's death, the Disability Effective Date, the date the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason or without Good Reason, as the case may be, is
effective.
(5) OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY THE
COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY OR BY THE EXECUTIVE FOR
GOOD REASON. If, during the Employment Period, the Company terminates the
Executive's employment, other than for Cause or Disability or by reason of
the Executive's death, or the Executive terminates employment for Good
Reason, the Company shall fulfill its obligations as to Base Salary under
Section 3(a) hereof for the balance of the Employment Period. Fifty percent
of such amounts shall be consideration for the Executive's undertaking not to
breach the terms of the covenants contained in Section 8 below. The Company
shall also provide the Executive with all benefits due in accordance with the
terms of any applicable plans and programs of the Company and shall also pay
to the Executive, in a lump sum in cash within 30 days after the Date of
Termination, the Executive's accrued but unpaid cash compensation (the
"Accrued Obligations"), which shall equal the sum of (1) any portion of the
Executive's Annual Base Salary through the Date of Termination that has not
yet been paid, (2) an amount representing the Annual Bonus for the year of
termination based on target, and multiplying that amount by a fraction, the
numerator of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365 (the "Annual
Bonus
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Amount"); (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) that has not yet been paid; and
(4) any accrued but unpaid Annual Bonuses and vacation pay; provided, however,
that the Company's obligation to make any payments under this Section to the
extent any such payment shall not have accrued as of the day before the Date of
Termination shall also be conditioned upon the Executive's execution, and
non-revocation, of a written release, substantially in the form attached hereto
as Annex 1, (the "Release"), of any and all claims against the Company and all
related parties with respect to all matters arising out of the Executive's
employment by the Company (other than any entitlements under the terms of this
Agreement or under any other plans or programs of the Company in which the
Executive participated and under which the Executive has accrued a benefit), or
the termination thereof.
Notwithstanding the foregoing, in the event payment is due to the
Executive under this Section following a Change of Control, then conditioned
upon the Executive's execution, and non-revocation, of the Release and the
Executive not breaching the terms of the covenants contained in Section 8 below,
the Executive, in lieu of the amounts specified in the first sentence above,
shall receive in a lump sum in cash within 30 days after the Date of Termination
equal to 2.99 multiplied by the sum of the Executive's Base Salary and the
Annual bonus paid to the Employee for the last full fiscal year (if any) ending
during the Employment Period or, if higher, the Annual Bonus paid to the
Employee for the last full fiscal year prior to the Change of Control. Fifty
percent of such amount shall be consideration for the Executive's undertaking
not to breach the terms of the covenants contained in Section 8 below. In
addition, the Executive shall also be entitled in the case of compensation
previously deferred by the Executive, to a lump sum equal to all amounts
previously deferred (together with any accrued interest thereon) and not yet
paid by the Company,
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and any accrued vacation pay not yet paid by the Company and to receive a
lump-sum retirement benefit equal to the difference between (a) the actuarial
equivalent of the benefit under the Retirement Plan, the Hilton Supplemental
Executive Retirement Plan and the Hilton Hotels Retirement Benefit Replacement
Plan the Executive would receive if he remained employed by the Company at the
compensation level provided for in Sections 3(a) and (b) of this Agreement for
the remainder of the Employment Period and (b) the actuarial equivalent, as of
the Date of Termination, of his benefit, if any, under the Retirement Plan and
the Hilton Supplemental Executive Retirement Plan and the Hilton Hotels
Retirement Benefit Replacement Plan. For the remainder of the Employment
Period, or such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Employee and/or the
Employee's family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies described in
Section 3 of this Agreement if the Employee's employment had not been
terminated, including health insurance and life insurance, in accordance with
the most favorable plans, practices, programs or policies of the Company and its
subsidiaries during the 90-day period immediately preceding the date on which
the Change of Control occurs or, if more favorable to the Employee, as in effect
at any time thereafter with respect to other key employees and their families
and for purposes of eligibility for retiree benefits pursuant to such plans,
practices, programs and policies, the Employee shall be considered to have
remained employed until the end of the Employment Period and to have retired on
the last day of such period.
(b) DEATH OR DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company, in addition to fulfilling its obligations
under Section 3(a) hereof, shall pay the Accrued Obligations to
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the Executive or the Executive's estate or legal representative, as applicable,
in a lump sum in cash within 30 days after the Date of Termination, and the
Company shall have no further obligations under this Agreement other than for
any entitlements under the terms any other plans or programs of the Company in
which the Executive participated and under which the Executive has accrued a
benefit.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated by the Company for Cause during the Employment
Period, the Company shall pay the Executive the Annual Base Salary through
the Date of Termination, the amount of any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon), in
each case to the extent not yet paid, and the amount of any earned but unpaid
Annual Bonuses and vacation pay, and the Company shall have no further
obligations under this Agreement other than for any entitlements under the
terms any other plans or programs of the Company in which the Executive
participated and under which the Executive has accrued a benefit. If the
Executive voluntarily terminates employment during the Employment Period,
other than for Good Reason, the Company shall pay the Accrued Obligations to
the Executive in a lump sum in cash within 30 days of the Date of
Termination, and the Company shall have no further obligations under this
Agreement other than for any entitlements under the terms any other plans or
programs of the Company in which the Executive participated and under which
the Executive has accrued a benefit.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor, subject to Section 13, shall
anything in this Agreement limit or otherwise affect such rights as the
Executive
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may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and other amounts that the Executive is
otherwise entitled to receive under any plan, policy, practice or program of, or
any contract or agreement with, the Company or any of its affiliated companies
on or after the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced, regardless of whether the Executive
obtains other employment.
8. CONFIDENTIAL INFORMATION; NON-SOLICITATION; NON-COMPETITION;
LICENSING; NO CONFLICT. In exchange for the Company agreeing to accelerated
vesting and exercisability of the Special Option upon any of the Triggering
Events and the payment to the Executive of fifty percent of his Base Salary
under Section 3(a) hereof for the balance of the Employment Period or fifty
percent of the lump sum payment in lieu of Base Salary provided under Section 5
in the event of Executive's termination of employment following a Change of
Control, the Executive agrees as follows:
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or
data, customer information, supplier information, cost and pricing
information, marketing and sales techniques, strategies and programs,
computer programs and software and financial information relating to the
Company or any of its affiliated companies and their respective businesses
that the Executive obtains during the
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Executive's employment by the Company or any of its affiliated companies and
that is not public knowledge (other than as a result of the Executive's
violation of this paragraph (a) of Section 8) ("Confidential Information"). The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Company, except
in the good faith performance of his duties hereunder, with the prior written
consent of the Company or as otherwise required by law or legal process. In no
event shall an asserted violation of the provisions of this paragraph (a) of
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
(b) For a period of two years after the expiration or
termination of the Executive's employment with the Company, the Executive will
not, except with the prior written consent of the Board, directly or indirectly,
own, manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, or use or permit Executive's name to be used in connection with,
any business or enterprise which is engaged in any business that is competitive
with any business or enterprise in which the Company is engaged at the Date of
Termination or expiration of the Employment Period. In addition, the Executive
agrees that he will not, for a period of two years after the expiration or
termination of the Executive's employment with the Company, without the prior
written consent of the Company, whether directly or indirectly, employ, whether
as an employee, officer, director, agent, consultant or independent contractor,
or solicit the employment of, any managerial or higher level person who is or at
any time during the previous twelve months was an employee, representative,
officer or director of the Company or any of its subsidiaries.
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(c) The Executive represents that he is licensed by the
gaming authorities in Nevada and New Jersey and knows of no reason why a
license necessary for him to perform his duties hereunder would not be
granted to or maintained by him by those or similar authorities in the future.
(d) Executive represents to the Company that neither his
continuation of employment hereunder nor the performance of his duties
hereunder conflicts with any contractual commitment on his part to any third
party or violates or interferes with any rights of any third party.
(e) The Executive acknowledges and agrees that the
restrictions contained in this Section are reasonable and necessary to
protect and preserve the legitimate interests, properties, goodwill and
business of the Company, that the Company would not have entered into this
Agreement in the absence of such restrictions and that irreparable injury
will be suffered by the Company should the Executive breach any of those
provisions. Executive represents and acknowledges that (i) the Executive has
been advised by the Company to consult Executive's own legal counsel in
respect of this Agreement, and (ii) that the Executive has had full
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with the Executive's counsel. The Executive further acknowledges
and agrees that a breach of any of the restrictions in this Section cannot be
adequately compensated by monetary damages. The Executive agrees that the
Executive's right to the payments specified above in consideration for his
undertakings under this Section shall be forfeited, the Executive's right to
exercise the Special Option shall cease and Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits
and other benefits in the event of any violation of this Section, which
rights shall be cumulative and in addition to any other rights
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or remedies to which the Company may be entitled; provided, however, that the
foregoing remedies shall be conditioned upon the Company providing the Executive
with at least 30 days written notice of its good faith belief that a violation
of the Executive's undertakings hereunder has occurred and Executive failing to
cease any such prohibited activity within 30 days after such written notice is
given. In the event that any of the provisions of this Section should ever be
adjudicated to exceed the time, geographic, service, or other limitations
permitted by applicable law in any jurisdiction, it is the intention of the
parties that the provision shall be amended to the extent of the maximum time,
geographic, service, or other limitations permitted by applicable law, that such
amendment shall apply only within the jurisdiction of the court that made such
adjudication and that the provision otherwise be enforced to the maximum extent
permitted by law. The Executive irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding arising out of this Section,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in the United States District Court for the Southern District of
California, or if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in Los Angeles, California,
(ii) consents to the non-exclusive jurisdiction of any such court in any such
suit, action or proceeding, and (iii) waives any objection which the Executive
may have to the laying of venue of any such suit, action or proceeding in any
such court. The Executive also irrevocably and unconditionally consents to the
service of any process, pleadings, notices or other papers in a manner permitted
by the notice provisions of Section 13 hereof.
9. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by
19
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
10. CHANGE OF CONTROL.
(a) For the purpose of this Agreement, a "Change of Control" shall
mean:
(i) The acquisition by any person, entity or "group",
within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange
Act of 0000 (xxx "Xxxxxxxx Xxx"). (excluding, for this purpose, (A) the Company
or its subsidiaries, (B) any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of the
Company or (C) Xxxxxx Xxxxxx, the Charitable Remainder Unitrust created by
Xxxxxx Xxxxxx to receive shares from the Estate of Xxxxxx X. Xxxxxx, or the
Xxxxxx X. Xxxxxx Foundation, collectively the "Hilton Interests"), of beneficial
ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either the then outstanding shares of common stock or
20
the combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14 a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or (B) a liquidation or dissolution of
the Company or (C) the sale of all or substantially all of the assets of the
Company; provided, however, that the Split shall not be deemed a "Change of
Control" for any purpose under this Agreement.
(b) Upon a Change of Control, the right to purchase all shares
subject to the Regular Option and the Special Option shall vest and become
exercisable; provided, however, that
21
with respect to the Special Option, such immediate vesting and exercisability
shall be conditioned upon the Executive not breaching the terms of the covenants
contained in Section 8.
(c) Anything in this Agreement to the contrary notwithstanding, in
the event that 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 (the "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, the Executive shall be paid an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any excise tax imposed under Section 4999 of
the Code, and any federal, state and local income and employment tax and excise
tax imposed upon the Gross-Up Payment shall be equal to the Payment. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income tax and employment taxes at the highest marginal
rate of federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
on the Termination Date, net of the maximum reduction in federal income taxes
that may be obtained from the deduction of such state and local taxes.
(d) All determinations to be made under this Section 10 shall be made
by the Company's independent public accountant immediately prior to the Change
of Control (the "Accounting Firm"), which firm shall provide its determinations
and any supporting calculations both to the Company and the Executive within 10
days of the Termination Date. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five days after the
Accounting Firm's determination, the Company shall pay (or cause to be
22
paid) or distribute (or cause to be distributed) to or for the benefit of the
Executive such amounts as are then due to the Executive under this Agreement.
(e) 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 knows 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 thirty day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
23
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 10, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearing 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 xxx for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a termination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, however, that if the Company directs the Executive
to pay such claim and xxx 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 provided further 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.
24
(f) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to this Section, 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 subsection (d)) 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 this Section, 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 thirty 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.
(g) All of the fees and expenses of the Accounting Firm in performing
the determinations referred to in subsections (b) and (c) above shall be borne
solely by the Company. The Company agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and expenses resulting
from or relating to its determinations pursuant to subsections (b) and (c)
above, except for claims, damages or expenses resulting from the gross
negligence or wilful misconduct of the Accounting Firm.
(h) Following a Change of Control and for a period of not less than
three years after the Date of Termination, the Executive be entitled to
indemnification and, to the extent available on commercially reasonable terms,
insurance coverage therefor, with respect to the various liabilities as to which
the Executive has been customarily indemnified prior to the Change of Control.
25
11. ARBITRATION. The Company and the Executive mutually consent to
the resolution by arbitration, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association, of
all claims or controversies arising out of the Executive's employment (or its
termination) that the Company may have against the Executive or that the
Executive may have against the Company or against its officers, directors,
shareholders, employees or agents in their capacity as such other than a claim
which is primarily for an injunction or other equitable relief. The Company and
the Executive shall equally share the fees and costs of the arbitrator, and each
party shall bear its own costs in connection with any arbitration, unless the
Executive shall prevail in an arbitration proceeding as to any material issue,
in which case the Company shall reimburse the Executive for all reasonable
costs, expenses and fees incurred in connection with such arbitration.
12. LEGAL FEES. The Company agrees to pay all legal fees incurred by
the Executive in connection with the negotiation and preparation of this
Agreement, up to a maximum of $15,000.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
26
IF TO THE EXECUTIVE:
x/x Xxxxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxx Xxxxxx
IF TO THE COMPANY:
0000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Attention: General Counsel
WITH A REQUIRED COPY TO:
Xxxxxx, Xxxxx & Xxxxxxx
0000 Xxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxxxxxxxx
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 13. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
27
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 5 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
14. PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements, including the provisions of the Prior Agreements, except for the
provisions of Sections 3(h), (i) and (j) of the Prior Employment Agreement
which shall continue in full force and effect in accordance with their terms,
and sets forth the entire understanding among the parties hereto with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
HILTON HOTELS CORPORATION
By /s/ Xxxxx Xxxxxx /s/ Xxxxxxx X. Xxxxxxxxxx
-------------------------------- ---------------------------------
Xxxxx Xxxxxx Xxxxxxx X. Xxxxxxxxxx
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