EXHIBIT 4
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EMPLOYMENT AGREEMENT
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This Agreement ("Agreement") dated this 30th day of September, 1996 among
Choice Hotels International, Inc. (to be renamed Choice Hotels Franchising,
Inc.) ("Choice Franchising") and Choice Hotels Holdings, Inc. (to be renamed
Choice Hotels International, Inc.) ("Choice Hotels" and, collectively with
Choice Franchising, the "Employer"), both Delaware corporations with principal
offices at 00000 Xxxxxxxx Xxxx, Xxxxxx Xxxxxx, Xxxxxxxx 00000, and Xxxxxxx X.
Xxxxx ("Employee"), sets forth the terms and conditions governing the
employment relationship between Employee and Employer.
1. Employment. During the term of this Agreement, as hereinafter
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defined, Employer hereby employs Employee as Chief Executive Officer ("CEO").
Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth and agrees to faithfully and to the best of his ability
perform such duties as may be from time to time assigned by Employer's Board of
Directors, such duties to be rendered at the principal office of Employer,
subject to reasonable travel. The Employer shall assign to Employee only those
duties consistent with his position as CEO. The Employee, in his position as
CEO, shall report directly to the Employer's Board of Directors and all senior
executives of the Employer shall report either directly to Employee or
indirectly through other senior executives. Employee also agrees to perform his
duties in accordance with policies established by Employer's Board of Directors,
which may be changed from time to time. At the Effective Date (defined below),
Employee shall be appointed to the Board of Directors of Choice Hotels (the
"Choice Hotels Board") as a Class III director, as specified in the Restated
Certificate of Incorporation of Choice Hotels. After the distribution of Choice
Hotels common stock to the stockholders of Manor Care, Inc. (the "Distribution
Date"), the term "Employer" under this Agreement shall refer solely to Choice
Hotels.
2. Term. Subject to the provisions for termination hereinafter provided,
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the term of this Agreement shall begin on October 21, 1996 ("Effective Date")
and shall terminate five (5) years thereafter (the "Termination Date"). The
Termination Date shall automatically be extended for successive one-year terms
unless either party gives written notice no less than nine months prior to the
Termination Date that it elects not to extend the Termination Date.
3. Compensation. For all services rendered by Employee under this
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Agreement during the term thereof, Employer shall pay Employee the following
compensation:
(a) Salary. A base salary of Four Hundred Twenty-five Thousand
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Dollars ($425,000) per annum payable in equal bi-weekly installments.
Such salary shall be reviewed by the Compensation Committee of the
Board of Directors of Employer on the first anniversary of the
Effective Date and thereafter at the end of each fiscal year and may
be increased at the discretion of Employer.
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(b) Incentive Bonus. Employee shall have the opportunity to earn
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up to a maximum of Sixty Percent (60%) per annum of the base salary
set forth in subparagraph 3(a) above in Employer's bonus plans as
adopted from time to time by Employer's Board of Directors. For the
Employer's 1997 fiscal year, the Employee's bonus shall be calculated
on a pro rata basis from the Effective Date. Additionally, the
Employer shall pay the Employee a one-time bonus of $121,232, payable
at the Effective Date.
(c) Restricted Stock. As soon as practicable after the Distribution
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Date, Choice Hotels shall issue to Employee restricted Choice Hotels
common stock ("Common Stock") in an amount equal to $1,250,000 divided
by the closing trading price of the Common Stock on its first day of
public trading following the Distribution Date. Upon issuance, Choice
Hotels and Employee shall enter into a Stock Agreement substantially
in the form of Exhibit A hereto. The restrictions on such shares shall
lapse upon vesting, which shall occur as specified on Exhibit A
hereto.
(d) Automobile. Employer shall provide Employee with an allowance
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for automobile expenses of $975 per month.
(e) Club Membership. Employer shall provide Employee with an
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appropriate corporate membership, including initial and annual fees,
at a dining and/or recreational club at the choice of Employee for the
purpose of business entertainment.
(f) Stock Options. Employee shall be eligible to receive options
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under the Choice Hotels International, Inc. Long Term Incentive Plan
("LTIP"), or similar plan, to purchase Common Stock in accordance with
the policy of the Choice Hotels Board as in effect from time to time.
Additionally, the Employee shall be granted, as soon as practicable
after the Distribution Date, options to purchase such number of shares
of Common Stock as is equal to $4,500,000 divided by the average of
the high and low trading price of the Common Stock on its first day of
public trading following the Distribution Date ("First Average Trading
Price"). A number of the options shall be incentive stock options
granted under the LTIP, which number shall be the maximum number
permitted under the LTIP and Section 422(d) of the Internal Revenue
Code of 1986, as amended, but in no event more than 25% of the total
number of options granted pursuant to this Section 3(f). The remainder
of the options shall be nonqualified stock options. The options shall
be exercisable at an amount per share equal to the First Average
Trading Price and shall vest as specified on Exhibit B hereto.
(g) SERP. At the Distribution Date, Employee shall participate in the
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Choice Hotels International, Inc. Supplemental Executive Retirement
Plan ("SERP"), with
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the following amendments:
(1) Section 1.05 of the SERP is deleted and replaced with: "'Final
Average Salary' shall mean the highest average of the monthly base
salary, excluding bonuses or commissions, earned in a sixty-month
period out of the 120 months of employment prior to Normal Retirement
Age, Early Retirement Age or the last day of service, as the case may
be."
(2) Section 1.08 of the SERP is deleted and replaced with: "'Years of
Service' shall mean the number of years and months of actual
employment between the Employment Date and the Normal Retirement Date,
the Early Retirement Date or the last day of service (as the case may
be), excluding any period during which Participant is employed on a
part-time basis."
(3) Notwithstanding the calculation of benefits specified is Section
4.01 of the SERP, the Employee's monthly retirement benefit will be
calculated as follows:
Years of Service* at Retirement Benefit* as %
Normal Retirement Age* of Final Average Salary*
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10 or more 30.0%
7.5 22.5%
5 15%
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*Terms are defined in the SERP.
Years of Service under the SERP shall be calculated as of the
Effective Date.
(4) Notwithstanding Section 5.01 of the SERP, the Employee may elect
Early Retirement at age 62, whether or not employed by the Employer at
such time, with full payment of benefits to which Employee is entitled
commencing thereon, without any reduction for Early Retirement. All
references to "15 Years of Service" in Section 5.01 and Article VII of
the SERP are replaced with "5 Years of Service."
(h) Other Benefits. Employee shall, when eligible, be entitled to
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participate in all other fringe benefits, including vacation policy,
generally accorded the most senior executive officers of Employer as are in
effect from time to time on the same basis as such other senior executive
officers.
(i) Relocation Expenses. Employee shall be entitled to all benefits
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under the Relocation Policy of Employer, as adopted in August 1996, with
the following
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additions:
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(1) Notwithstanding Section II(C) of the Relocation Policy, the
Employer will pay for the separate shipping of two automobiles;
(2) Notwithstanding Section III(A) of the Relocation Policy, the
Employer will pay for as many trips as are reasonably necessary for
the purpose of locating suitable housing; and,
(3) Notwithstanding Section III(B) of the Relocation Policy, Employer
will reimburse Employee for the reasonable costs of a furnished
apartment, including rent, utilities and broker's fees, for a period
of up to one year from the Effective Date and first-class return trips
for Employee and Employee's spouse to Employee's California home as
are reasonably needed.
(4) The Employer will also provide the Employee with a bridge loan
with a term of one year and limited to 90% of the amount of equity in
Employee's present house (as determined in accordance with Employer's
policy on such loans) and secured by a lien on the house that Employee
is selling. The other terms of the bridge loan shall be in accordance
with Employer's policy on such loans.
(5) Pursuant to its Home Purchase Policy, the Employer shall offer to
purchase the Employee's home in accordance with the terms and
conditions of such policy.
(6) Employer and Employee acknowledge that if Employee voluntarily
terminates this Agreement prior to one year from the Effective Date
because he is "Constructively Terminated" (as defined in Section 7),
Employee shall have no obligation to reimburse the Employer for
relocation costs.
4. Extent of Services. Employee shall devote his full professional
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time, attention, and energies to the business of Employer, and shall not during
the term of this Agreement be engaged in any other business activity whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage; but the foregoing shall not be construed as preventing Employee from
investing his assets in the securities of public companies, or the securities of
private companies or limited partnerships outside the lodging industries if such
holdings are passive investments of one percent or less of outstanding
securities and Employee does not hold positions of director, officer, employee
or general partner. Employee warrants and represents that he has no contracts
or obligations to others which would materially inhibit the performance of his
services under this Agreement.
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5. Disclosure and Use of Information. Employee recognizes and
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acknowledges that Employer's and affiliates' present and prospective clients,
franchises, management contracts, acquisitions and personnel, as they may exist
from time to time, are valuable, special and unique assets of Employer's
business. Throughout the term of this Agreement and for a period of two (2)
years after its termination or expiration for whatever cause or reason except as
required by applicable law, Employee shall not directly or indirectly, or cause
others to, make use of or disclose to others any information relating to the
business of Employer that has not otherwise been made public, including but not
limited to Employer's present or prospective clients, franchises, management
contracts or acquisitions. In the event of an actual or threatened breach by
Employee of the provisions of this paragraph, Employer shall be entitled to
injunctive relief restraining Employee from committing such breach or threatened
breach. Nothing herein stated shall be construed as preventing Employer from
pursuing any other remedies available to Employer for such breach or threatened
breach, including the recovery of damages from Employee.
6. Notices. Any notice, request or demand required or permitted to be
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given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or, if sent by certified or registered mail to his
residence in the case of Employee, or to its principal office in the case of the
Employer. Such notice shall be deemed given when delivered if personally
delivered or within three days of mailing if sent certified or registered mail.
7. Elective Positions.
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(a) Nothing contained in this Agreement is intended to nor shall be
construed to abrogate, limit or affect the powers, rights and privileges of the
Board of Directors or stockholders to remove Employee from the positions set
forth in Section 1, with or without Cause (as defined in Section 10 below),
during the term of this Agreement or to elect someone other than Employee to
those positions, as provided by law and the By-Laws of Employer; provided,
however, that if Employee is Constructively Terminated (as defined in Section
7(b) below), it is expressly understood and agreed that Employee's rights under
this Agreement shall in no way be prejudiced, and Employee shall be entitled to
receive compensation referred to in Section 3 above, except ungranted stock
options (but including the continued vesting of previously granted restricted
stock and stock options). Employee upon removal shall not be required to
mitigate damages but nevertheless shall be entitled to pursue other employment,
and Employer shall be entitled to receive as offset and thereby reduce its
payment, the amount received by Employee from any other active employment. As a
condition to Employee receiving his compensation from Employer, Employee agrees
to permit verification of his employment records and Federal income tax returns
by an independent attorney or accountant, selected by Employer but reasonably
acceptable to Employee, who agrees to preserve the confidentiality of the
information disclosed by Employee except to the extent required to permit
Employer to verify the amount received by Employee from other active employment.
Employer shall receive credit for unemployment insurance benefits, social
security insurance or like amounts actually received by Employee.
(b) For purposes of this Section 7, "Constructively Terminated" shall mean
removal or
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termination of Employee other than in accordance with Section 10, failure of the
Employer to place Employee's name in nomination for re-election to the Choice
Hotels Board, assignment of duties by the Employer inconsistent with Section 1,
a change in Employee's title or the line of reporting set forth in Section 1 or
any other material breach of this Agreement by Employer provided Employer shall
be given fourteen days advance written notice of such claim of material breach,
which written notice shall specify in reasonable detail the grounds for such
claim of material breach. Except in the case of bad faith, Employer shall have
an opportunity to cure the basis for Constructive Termination during the
fourteen day period after written notice.
8. Waiver of Breach. The waiver of either party of a breach of any
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provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9. Assignment. The rights and obligations of Employer under this
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Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. The obligations of Employee hereunder may not be
assigned or delegated.
10. Termination of Agreement. This Agreement shall terminate upon the
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following events and conditions:
(a) Upon expiration of its term;
(b) For Cause which means, including but not limited to, refusal to carry
out duties and instructions of the Employer's Board of Directors consistent
with the position, material dishonesty, a violation or a willful breach of
this Agreement, conviction of a felony involving moral turpitude, fraud or
misappropriation of corporate funds or any willful acts or omissions
inimical to or contrary to material policies of Employer not arbitrarily
applied in the case of Employee. In the event of termination by Employer
for Cause, vested but unexercised options granted during the term of this
Agreement shall be forfeited as a result thereof, as of the date of notice
and Employer shall have the right to purchase from Employee, at the price
paid by Employee, such of its Common Stock as has been acquired by Employee
by exercise of a stock option granted during the term of this Agreement if
such exercise is within six (6) months prior to termination of this
Agreement as a result of such breach. Employee shall be entitled to
fourteen (14) days advance written notice of termination, except where the
basis for termination constitutes conduct on the part of Employee involving
dishonesty or bad faith, in which case the termination shall be effective
upon the sending of notice. Such written notice shall specify in reasonable
detail the grounds for Cause. Except in the case of material dishonesty,
bad faith, conviction of a felony or fraud, Employee shall have an
opportunity to cure the basis for termination during the fourteen day
period after written notice.
(c) If Employee is unable to perform the essential functions of the
services described herein for more than 180 days (whether or not
consecutive) in any period of 365 consecutive days, Employer shall have the
right to terminate this Agreement by written notice to Employee. In the
event of such termination, all non-vested obligations of
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Employer to Employee pursuant to this Agreement shall terminate.
(d) In the event of Employee's death during the term of this Agreement,
the Agreement shall terminate as of the date thereof.
11. Legal Fees. Employer shall reimburse the Employee for all reasonable
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attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
12. Registration Rights. The Employer shall use its reasonable best
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efforts to register on Form S-8 the restricted stock issued pursuant to Section
3(c) and the nonqualified options issued pursuant to Section 3(f) of this
Agreement. All costs in connection with such registration shall be borne by the
Employer.
13. Entire Agreement. This instrument contains the entire agreement of
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the parties. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Maryland, and any disputes arising out of or relating to this Agreement
shall be brought and heard in any court of competent jurisdiction in the State
of Maryland.
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14. Board Approval. Notwithstanding any other provision to the contrary,
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this Agreement is subject to the approval of the Choice Hotels Board and the
Choice Franchising Board at its September 30, 1996 meeting and shall not be
valid, binding and enforceable prior thereto. Prior to such approval, neither
party hereto shall make any public announcement with respect to this Agreement
or the employment of Employee by Employer.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Employer:
CHOICE HOTELS INTERNATIONAL, INC.
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Senior Vice President
CHOICE HOTELS HOLDINGS, INC.
(to be renamed Choice Hotels International, Inc.)
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Senior Vice President
Employee:
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
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