**Exhibit 10.30**

 

EMPLOYMENTAGREEMENT

 

AMENDED AND RESTATEDAGREEMENT by and between Hilton Hotels Corporation, a Delaware corporation (the“Company”), and Stephen F. Bollenbach (the “Executive”), dated November 11,2004, as amended on January 27, 2005, but effective as of January 1,2005, except as specifically provided otherwise herein.

 

WHEREAS, the Executiveand the Company entered into an Employment Agreement dated as of March 9,2000 (the “Employment Agreement”);

 

WHEREAS, the Executiveand the Company also entered into a letter agreement dated May 23, 2002,pursuant to which the Executive was to provide consulting services (the “Consultancy”)to the Company following his retirement at the end of the term of theEmployment Agreement (the “Consulting Agreement”);

 

WHEREAS, the Board ofDirectors of the Company (the “Board”) has determined that it is in the bestinterests of the Company and its shareholders to continue to employ theExecutive as  Chief Executive Officerbeyond the expiration of the Employment Agreement and to delay the commencementof the Consultancy, and the Executive desires to continue to serve as ChiefExecutive Officer and thereafter provide services as a consultant, all on theterms and conditions set forth below;

 

WHEREAS, the Board desiresto amend the Employment Agreement to set forth the Executive’s compensationduring the new term of employment, to incorporate the terms of the Consultancyinto this Employment Agreement and to permit the Executive to diversify hisstock holdings in the Company in light of his expected retirement from theCompany on the Retirement Date (as hereinafter defined);

 

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NOW, THEREFORE, IT ISHEREBY AGREED THAT THE EMPLOYMENT AGREEMENT SHALL BE AMENDED AND RESTATED,EFFECTIVE AS OF JANUARY 1, 2005, TO READ AS FOLLOWS:

 

1.                                       Employmentand Consulting Periods.

 

(a)                                  TheCompany shall continue to employ the Executive, and the Executive shall servethe Company, on the terms and conditions set forth in this Employment Agreement,for the period (the “Employment Period”) beginning on January 1, 2005 (the“Commencement Date”) and ending on December 31, 2007, unless soonerterminated pursuant to Section 4 below (the “Term”).  Upon the expiration of the Term, and subjectto subparagraph (b) below, the Executive shall retire and the Executive’semployment by the Company shall not be further extended.  The Executive’s “Retirement Date” will be December 31,2007 for purposes of the Company’s benefit plans and programs and the supplementalretirement benefit provided in Section 3(i) below.

 

(b)                                 Uponthe termination of the Executive’s employment, the Consultancy will commenceand the Company will engage the Executive as a consultant to the Executive’ssuccessor and the Board through the day before the fifth anniversary of thedate of such termination of employment (the “Consulting Period”).  Notwithstanding the foregoing, the ConsultingPeriod will end, and the Company shall have no further obligation to make anypayments to the Executive under subsection 3(k), in the event that theExecutive shall materially breach his obligations to the Company under Section 8below.

 

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2.                                       Positionand Duties.

 

(a)                                  Duringthe Employment Period, the Executive shall continue to be employed as the ChiefExecutive Officer of the Company and, when applicable, the Company shall causethe Executive to be reelected as a member of the Board.  In his executive capacity, the Executiveshall report to the Board.  During theEmployment Period, the Executive shall have authority to make all executivedecisions, plan the strategic direction of the Company, and hire, promote andterminate the employment of all personnel, subject to the direction of theBoard.  During the Employment Period, theExecutive shall have such reasonable and customary powers as are generallyassociated with the position of Chief Executive Officer, including, withoutlimitation, authority to expend capital resources of the Company and shall have,subject to the direction of the Board, authority to fill all managementpositions.

 

(b)                                 Duringthe Consulting Period, the Executive will perform such consulting services asmay reasonably be requested of the Executive by the new CEO or the Board butsuch services will not be in excess of 20****hours permonth and will be designed so as not to interfere with any other businessobligations of the Executive.

 

(c)                                  If,during the Employment Period, Barron Hilton shall cease to serve as Chairman ofthe Board for any reason, the Company shall cause the Executive thereupon to beelected as Chairman of the Board in addition to the position of Chief ExecutiveOfficer and shall, as Chairman, report directly to the Board.

 

(d)                                 Duringthe Employment Period, and excluding any periods of vacation and sick leave towhich the Executive is entitled, the Executive shall devote principal attentionand time during normal business hours to the business and affairs of theCompany and, to the extent

 

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necessary to dischargethe responsibilities assigned to the Executive under this Employment Agreement,use the Executive’s reasonable best efforts to carry out such responsibilitiesfaithfully and efficiently. Notwithstanding the foregoing, nothing in this Employment Agreementshall be construed to limit the ability of the Executive from providingservices to the entity which holds the Company’s former gaming operations.  It shall not be considered a violation of theforegoing for the Executive to (A) serve on corporate, civic or charitableboards or committees (excluding those which would create a conflict ofinterest), (B) deliver lectures, fulfill speaking engagements or teach ateducational institutions and (C) manage personal investments, so long as suchactivities do not materially interfere with the performance of the Executive’sresponsibilities as an employee of the Company in accordance with thisEmployment Agreement.

 

(e)                                  TheExecutive’s services shall be performed primarily at the Company’s Headquartersin Beverly Hills, California.

 

3.                                       Compensation.

 

(a)                                  BaseSalary.  During the EmploymentPeriod, the Executive shall receive an annual base salary (“Annual Base Salary”)of $1,000,000, payable in accordance with the regular payroll practices of theCompany.

 

(b)                                 Bonuses.

 

(1)                                  **Signing Bonus**.  Inconsideration for the Executive’s agreement to enter into this amended andrestated Employment Agreement, the Company shall establish a book entry accountto which it shall credit as of January 2, 2005 a one-time non-recurringsigning bonus of $193,194.

 

(2)                                  **Annual Bonus**.  Inaddition to the Annual Base Salary, the

 

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Executive shall beeligible to earn, for each fiscal year ending during the Employment Period, anannual bonus (the “Annual Bonus”), pursuant to the Company’s annual incentiveplan, with a target equal to 100% of Annual Base Salary and a maximum of 200%of Annual Base Salary.

 

(3)                                  **Special Bonus**.  Inconsideration for the Executive’s agreement to terminate the $10.0 million lifeinsurance arrangement set forth in subsection 3(j) of the EmploymentAgreement prior to this amendment and restatement, and to release the Companyof its obligations to make the annual premium contributions to the SupplementalPolicy, as defined therein, the Executive shall be entitled, on the firstbusiness day in January in each calendar year, beginning with 2005 andthrough and including 2009, to receive from the Company a special annual bonusof $137,830, regardless of whether the Executive is then still employed by, orproviding consulting services to, the Company. If the Executive is still an employee of the Company on, or was anemployee at any time within six months prior to, the date such bonus is due,such amount shall be credited to a book entry account to be established by theCompany.  If the Executive has not beenan employee of the Company on any date that is six months prior to the datesuch bonus is due, the Company shall pay such amount directly to the Executivewithin a reasonable period (but not later than 10 business days) after it isdue.

 

(4)                                  **Section 162(m) Deferrals**.  That portion of any bonus to be paid to theExecutive during any taxable year of the Company which, when added to any otherwisedeductible compensation and benefits paid or provided to the Executive by theCompany during such taxable year, would not be deductible by the Company in thetaxable year such bonus is to be paid or accrued because of the applicablelimitations under Section 162(m) of the Internal Revenue Code of 1986, asamended (the “Code”), shall be deferred annually and paid to the Executive, ina lump sum, on first

 

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date (the “Deferral Date”)which is after (i) the last day of the Company’s taxable year in which theExecutive ceases to be a “covered employee,” within the meaning of Section 162(m)(3)of the Code, and (ii) the date which is six months and one day after the dateon which the Executive’s employment terminated (except that this subclause (ii)shall not apply if the Executive’s employment with the Company terminates dueto his death or “disability,” as defined in Section 409A of the Code).

 

(5)                                  **Earnings on Deferrals**. Except as otherwise provided below, any amounts of bonus deferred oramounts credited to a book entry account, as provided above, shall be credited,from the date it would otherwise have been paid to the date the deferredamounts are paid, with interest at a floating rate equal to the rate whichMorgan Guaranty announces from time to time as its prime lending rate, as ineffect from time to time, compounded quarterly, and such accrued interest shallbe paid to the Executive on the Deferral Date (said deferred bonus and creditedamounts plus interest collectively referred to as the “Deferred Compensation”).  Notwithstanding the foregoing, the Executivemay elect, prior to the end of each calendar year for which a bonus isdeferred, to have all or any portion of the Deferred Compensation to be creditedfor that year treated as though invested in shares of the Company’s commonstock, on a book entry account basis. Such Deferred Compensation shall be deemed to be used to purchase suchshares on the date the bonus would otherwise have been paid, based on theaverage of the high and low trading prices of the stock on such day.  The number of shares credited to theExecutive’s account  under thissubparagraph (5) shall be adjusted to reflect any changes to the Company’scapital structure in the same manner as if shares were actually issued to theExecutive on the day the bonus would otherwise have been paid.  The Company shall also credit the Executive’saccount with additional amounts equivalent to any 

 

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and all dividends ordistributions paid on its shares of common stock (on the same basis as thoughsuch shares had been outstanding on the record date for such dividend ordistribution), with any such dividends or distributions deemed invested in additionalshares of the Company’s common stock based on the average of the high and lowtrading prices of the stock on the day the dividend or distribution is payableto shareholders of the Company.

 

(6)                                  **Distribution of Deferred Compensation**.  The Deferred Compensation shall be paid onthe Deferral Date by wire transfer to an account designated by the Executiveprior to the Deferral Date (or by transfer of shares of common stock to theextent of the account referred to in subparagraph (5)).

 

(c)                                  OtherBenefits.  During the EmploymentPeriod: (i) the Executive shall be entitled to participate in all incentive,savings and retirement plans, practices, policies and programs of the Companyto at least the same extent as other senior executives of the Company, providedthat the Executive’s right to receive additional grants after the date hereofunder any long-term incentive plans shall be solely as specified in thisEmployment Agreement; and (ii) the Executive and/or the Executive’s family, asthe case may be, shall be eligible for participation, and shall receive allbenefits under, all welfare benefit plans, practices, policies and programsprovided by the Company (including, without limitation, medical, prescription,dental, disability, salary continuance, employee life insurance, group lifeinsurance, 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 promptreimbursement for all reasonable expenses incurred by the Executive in carryingout the Executive’s duties under this Employment Agreement, provided that theExecutive complies with

 

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the generally applicablepolicies, practices and procedures of the Company for submission of expensereports, receipts, or similar documentation of such expenses.

 

(e)                                  FringeBenefits and Air Travel.  During theEmployment Period, the Executive shall be entitled to fringe benefits andperquisites in accordance with the most favorable plans, practices, programsand policies of the Company as in effect at the time with respect to othersenior executives of the Company, including, without limitation, the use of an automobileand payment of related expenses; and first-class travel accommodations on allcommercial carriers for travel related to the business of the Company.  The Executive shall also be entitled tounrestricted, but not exclusive, use of the Company’s aircraft (leased orowned); provided, however, that if the Executive uses the Company’s aircraftfor his personal purposes, he shall incur the Federal, state and local incometax consequences for the value of such usage, as determined in accordance withthe Company’s cost determination methodology applied to the Company’s seniorexecutives with respect to their personal use of the Company’s aircraft.

 

(f)                                    Officeand Support Staff.  During theEmployment Period, the Executive shall be entitled to his current office at theCompany’s Beverly Hills Headquarters, and to secretarial and other assistance,at least equal to the most favorable of such as provided with respect to othersenior executives of the Company. Without limiting the generality of the foregoing, during the EmploymentPeriod, the Executive shall at all times have a personal secretary and apersonal assistant.

 

(g)                                 Vacation.  During the Employment Period, the Executiveshall be entitled to four weeks of paid vacation annually.

 

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(h)                                 StockOptions:

 

(i)                                     **Prior Option Grants**.

 

1.                                       OnDecember 31, 1998 (the “Incentive Option Grant Date”), the Executive wasgranted, *inter alia*, non-statutory stock options(the “Incentive Option”) under the Company’s 1996 Stock Incentive Plan, asamended (the “Old Stock Plan”) covering 2,000,000 shares of the Company’scommon stock.  The exercise price of theshares subject to the Incentive Option is $27.52676.  The Incentive Option is exercisable for 10years except as otherwise specifically provided in this EmploymentAgreement.  The Incentive Option shallvest and become exercisable on the date that is 9 years and 9 months followingthe Incentive Option Grant Date if the Executive continues in the employment ofthe Company through such date. Notwithstanding the foregoing, all shares subject to the IncentiveOption shall vest and become exercisable upon the occurrence of any of thefollowing events (each of (A), (B) and (C) below a “Triggering Event”):

 

(A)                              terminationof the Executive’s employment by the Company other than for Cause, as definedbelow;

 

(B)                                terminationof the Executive’s employment because of death or Disability;

 

(C)                                terminationof employment by the Executive for Good Reason, as defined below;

 

(D)                               retirementof the Executive on the Retirement Date; or

 

(E)                                 aChange of Control, as defined in the Old Stock Plan;

 

provided that if theExecutive shall have materially breached the terms of the covenants containedin Section 8 below (i) on or prior to the Triggering Event, the IncentiveOptions shall not vest and become exercisable or (ii) after the TriggeringEvent, any portion of such Incentive Option that shall

 

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have not been exercisedshall cease to be exercisable; it being understood that such vesting andexercisability are part of the consideration for the Executive’s undertakingsunder Section 8.

 

2.                                       Ifa Triggering Event occurs, any portion of the Incentive Option that has becomevested on or before the date of such Event (including without limitation, anyportion that becomes exercisable due to such Triggering Event) shall remainexercisable until December 30, 2008. All non-vested portions of the Incentive Option shall immediatelyterminate.

 

3.                                       TheExecutive may assign the right to exercise the Incentive Option to his spouse,children, grandchildren, or parents of a recipient, to trusts for the benefitof the Executive’s immediate family, to a family partnership or limitedliability company designated by the Executive in which the Executive’s familymembers are the only partners or shareholders or to an entity exempt fromfederal income tax under Section 501(c)(3) of the Code.

 

4.                                       TheIncentive Option shall be subject to the terms of the Old Stock Plan in allrespects not described herein.

 

(ii)                                  **New Option Grant**.  Ineach year of the Employment Period (but subject to the Executive’s continuedemployment through the applicable grant date), the Executive shall be granted,at the same time each year as grants are made generally to other executives, astock option covering 400,000 shares (each, a “New Option”) of the Company’scommon stock under the Company’s 2004 Equity Compensation Plan (the “New StockPlan”).  The exercise price of the sharessubject to each New Option shall be the fair market value of a share on thedate of grant of such New Option (each, a “New Option Grant Date”).  Each New Option shall become exercisable uponthe earlier of (i) the Retirement Date and (ii) the date on which a TriggeringEvent (including a Change of Control, but as defined in the New Plan) occurs,but in either case only if the Executive is

 

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continuously employed bythe Company through the earlier of such dates. Once exercisable, each New Option shall remain exercisable until March 31,2013; provided, however, that any portion of each New Option that shall nothave been exercised shall cease to be exercisable on the date, if any, that theExecutive materially breaches his obligations under Section 8 below, itbeing recognized that such vesting and exercisability are part of theconsideration for the Executive’s undertakings under Section 8.  The New Options shall be subject to the termsof the New Stock Plan in all respects not described herein; provided, however,that the provisions of subparagraph (i)(3) above shall also apply.

 

(iii)                               **Performance Share Grant**. In each year of the Employment Period (but subject to the Executive’scontinued employment through the applicable grant date), the Executive shall begranted, at the same time each year as grants are made generally to otherexecutives,****performance units (the “PerformanceShares”) under the New Stock Plan that equate, at “targeted performance,” to140,000 shares of the Company’s common stock. The actual number of shares to be earned with respect to each such grantshall be determined by the Compensation Committee of the Board based on the performancegoals established by the Compensation Committee with respect to performance sharegrants to the Company’s other executive officers made at such time.  Each grant of Performance Shares shall veston the last day of the third year of the relevant performance period (even ifthat date is after the Retirement Date) provided that the Executive is employeduntil the Retirement Date.  In addition,each grant of Performance Shares shall also vest upon the occurrence of aTriggering Event (including a Change of Control, but as defined in the New StockPlan).  The Performance Shares shall besubject to the terms of the New Stock Plan in all respects not describedherein.

 

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(iv)                              **Release of Restrictions on Prior Option Shares**.  Effective upon the execution of thisAgreement and in consideration for the Executive’s agreement to extend theEmployment Period, the Company hereby releases the Executive from therestrictions imposed pursuant to an agreement, dated September 10, 2003,between the Company and the Executive on his ability to resell certain sharesof common stock acquired upon the exercise of the stock options referenced insuch agreement.

 

(i)                                     SupplementalRetirement Benefit.

 

(i)                                     PhantomShare Interest.  Pursuant to theterms of this Employment Agreement, as in effect prior to the amendment andrestatement hereof, the Executive elected to convert his right to receive thejoint and survivor annuity provided thereunder into a phantom interest in theequivalent value of the Company’s common stock, resulting in a credit to a bookentry account for the Executive of 700,000 of its common shares.  By reason of such election, the Executiveshall be entitled to receive a distribution, on the Retirement Date, of 700,000shares of common stock multiplied by his vested percentage.  As of the date of this amendment andrestatement of the Employment Agreement, the Executive is 80% vested in suchphantom interest.  The Executive shallbecome fully vested in such interest on the earliest to occur of (i) June 30,2005, (ii) the date, if any, on which a Change of Control (as defined below)occurs, and (iii) the date, if any, on which the Executive’s employment isterminated by the Company other than for Cause or due to his death ordisability, or by the Executive for Good Reason; provided that no additionalvesting shall occur under subclause (i) or (ii) above unless the Executive iscontinuously employed by the Company through the date referred to therein.  Such distribution shall be made as soon aspracticable after the Retirement Date (or such later date(s) as the Executiveshall elect at least 13 months prior to the

 

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Retirement Date but in nomore than 10 annual installments); provided, however, that if the final 20%portion of the phantom interest becomes vested after December 31, 2004,the attributable distribution shall be made, irrespective of any election bythe Executive, on the later of (i) the last day of the Company’s taxable yearin which the Executive ceases to be a “covered employee,” within the meaning ofSection 162(m)(3) of the Code, and (ii) the date which is six months andone day after the date on which the Executive’s employment terminated (exceptthat this subclause (ii) shall not apply if the Executive’s employment with theCompany terminates due to his death or “disability,” as defined in Section 409Aof the Code).  The number of sharescredited to the Executive’s account under this subparagraph shall be adjustedto reflect any changes to the Company’s capital structure in the same manner asif shares were actually issued to the Executive on March 9, 2000.  The Company shall also credit the Executive’saccount with additional amounts equivalent to any and all dividends ordistributions paid on its shares of common stock (on the same basis as thoughsuch shares had been outstanding on the record date for such dividend ordistribution), with any such dividends or distributions deemed invested inadditional shares of the Company’s common stock based on the average of thehigh and low trading prices of the stock on the day the dividend ordistribution is payable to shareholders of the Company.

 

(j)                                     DeathBenefit and Life Insurance.  Duringthe Employment Period, the Executive shall be entitled to a Company-provideddeath benefit in the following amounts:

 
| **Date  of Death**                                     | ** ** | **Amount of Benefit** |
|--------------------------------------------------------|------------|-----------------------|
|                                                   |       |                  |
| On or before June 30,  2001                       |       | $5.0 million          |
|                                                   |       |                  |
| After June 30,  2001 and before July 1, 2002 |       | $4.0 million          |

 

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| After June 30,  2002 and before July 1, 2003 |   | $3.0 million |
|--------------------------------------------------------|--------|--------------|
|                                                   |   |         |
| After June 30,  2003 and before July 1, 2004 |   | $2.0 million |
|                                                   |   |         |
| After June 30,  2004 and before July 1, 2005 |   | $1.0 million |

 

The Company has purchasedfor the Executive a $10.0 million face amount, last to die, variable lifeinsurance policy on the lives of the Executive and the Executive’s spouse (the “SupplementalPolicy”).  In light of the prohibition ofloans to executive officers under the Sarbanes-Oxley Act of 2002 and theuncertainty of its application to split-dollar life insurance arrangements,such as the Supplemental Policy, the Company and the Executive agree toterminate the Supplemental Policy and the provisions of this Section as ineffect on March 9, 2000 (the “Split Dollar Arrangement”).  Under the Split Dollar Arrangement, theCompany retained an interest in the Supplemental Policy equal to the lesser ofthe premiums the Company paid to the Supplemental Policy or the cash surrendervalue of the Supplemental Policy.  Theparties now agree that the Executive shall take all actions necessary so as topermit the Company to withdraw from the Supplemental Policy, by December 31,2004, the maximum amount that may be withdrawn from the Supplemental Policywithout incurring any surrender charges or terminating the Supplemental Policyand the Company shall take such withdrawal no later than January 31,2005.  The date on which the Company’swithdrawal from the Supplemental Policy shall be effected shall hereinafter bereferred to as the “Withdrawal Date.”  Assoon as practicable after the Withdrawal Date, the Executive shall pay to theCompany an amount equal to the cash surrender value remaining in theSupplemental Policy as of the Withdrawal Date. The Split-Dollar Arrangement shall be terminated effective as of theWithdrawal Date, with the effect that: (i) the Company shall release itscollateral interest in the cash

 

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surrender value of theSupplemental Policy, (ii) the Company shall have no obligation to make anypremium contributions to the Supplemental Policy, and (iii) the Executive’sdesignated trust shall have an unfettered ownership interest in theSupplemental Policy.

 

(k)                                  ConsultingFee, etc.  During the ConsultingPeriod, the Executive’s annual fee shall be $500,000, payable in quarterlyinstallments; provided, however, that the Company shall have the right, in itssole discretion, at any time to pay the Executive the lump sum present value,as reasonably determined by the Company, of the consulting fee or that portionremaining due at the time of the payment. The Executive shall not be entitled to an annual bonus or any additionalgrants of long term incentive compensation but shall be entitled to continuedhealth benefits, or, at the Company’s sole election, a tax equivalent bonus toenable the Executive to purchase such benefits from the Company with the sameafter-tax cost to the Executive as in effect for executives of the Company onany relevant date; provided, however, that the right to health benefits shallcease at the time, if any, that the Executive is eligible for reasonablycomparable health benefits, as determined by the Company, from any newemployment, consulting or other business arrangement.  However, except to the extent that theExecutive otherwise qualifies to receive any such benefit following hisemployment by reason of his service to the Company as an employee prior to thecommencement of the Consulting Period, all other employee benefits,perquisites, automobile allowances, use of the Company’s aircraft and fringebenefits as well as holiday and vacation pay will cease on the RetirementDate.  During the Consulting Period, theExecutive will also be entitled to office space appropriate to the Executive’sstatus as a consultant to the new CEO and the Board and to a personal assistantof the Executive’s choosing.

 

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4.                                       Terminationof Employment.

 

(a)                                  Deathor Disability.  The Executive’semployment and the Employment Period shall terminate automatically upon theExecutive’s death during the Employment Period. The Company shall be entitled to terminate the Executive’s employmentbecause of the Executive’s Disability during the Employment Period.  “Disability” means that (i) the Executive hasbeen unable, for a period of 180 consecutive business days, to perform theExecutive’s duties under this Employment Agreement, as a result of physical ormental illness or injury, and (ii) a physician selected by the Company or itsinsurers, and acceptable to the Executive or the Executive’s legalrepresentative, has determined that the Executive’s incapacity is total andpermanent.  The Executive agrees toreasonably cooperate with the Company in order to obtain its physician’sevaluation of the Executive.  Atermination of the Executive’s employment by the Company for Disability shallbe communicated to the Executive by written notice, and shall be effective onthe 30th day after receipt of such notice by the Executive (the “DisabilityEffective Date”), unless the Executive returns to full-time performance of theExecutive’s duties, as determined by the Board, before the Disability EffectiveDate.

 

(b)                                 Bythe Company.

 

(i)                                     TheCompany may terminate the Executive’s employment during the Employment Periodfor Cause or without Cause.  “Cause”means:

 

(A)                              thewillful and continued failure of the Executive substantially to perform theExecutive’s duties under this Employment Agreement (other than as a result ofphysical or mental illness or injury), after the Board delivers to theExecutive a written demand for substantial performance that specificallyidentifies the manner in which the Board believes that the Executive has notsubstantially performed the Executive’s duties;

 

(B)                                illegalconduct or gross misconduct by the Executive, in either case that is willfuland results in material and demonstrable damage to the business or reputationof the Company; or

 

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(C)                                abreach of the covenants or representations contained in Section 8.

 

(ii)                                  Atermination of the Executive’s employment for Cause shall be effected inaccordance with the following procedures. The Company shall give the Executive written notice (“Notice ofTermination for Cause”) of its intention to terminate the Executive’semployment for Cause, setting forth in reasonable detail the specific conductof the Executive that it considers to constitute Cause and the specificprovision(s) of this Employment Agreement on which it relies, and stating thedate, time and place of the Special Board Meeting.  The “Special Board Meeting” means a meetingof the Board called and held specifically for the purpose of considering theExecutive’s termination for Cause, that takes place not less than five and notmore than fifteen business days after the Executive receives the Notice ofTermination for Cause.  The Executiveshall be given an opportunity, together with counsel, to be heard at theSpecial Board Meeting.  The Executive’stermination for Cause shall be effective when and if a resolution is dulyadopted at the Special Board Meeting, stating that, in the good faith opinionof the Board, the Executive is guilty of the conduct described in the Notice ofTermination for Cause, and such conduct constitutes Cause under this EmploymentAgreement.

 

(c)                                  GoodReason.

 

(i)                                     TheExecutive may terminate employment for Good Reason or without Good Reason.  “Good Reason” means:

 

A.                                   theassignment to the Executive of any duties inconsistent in any material respect(in any respect, following a Change of Control) with paragraph (a) or, ifapplicable, (b) of Section 2 of this Employment Agreement, or any otheraction by the Company that

 

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results in a materialdiminution in the Executive’s position or authority, duty, titles,responsibilities, or reporting requirements other than an action that is nottaken in bad faith and is remedied by the Company within 30 days after receiptof written notice thereof from the Executive; provided, however, that the Executiveacknowledges that the appointment of a President of the Company and thetransition of duties to that individual, consistent with his position, shallnot be treated as a diminution of the Executive’s duties for this purpose.

 

B.                                     Anymaterial failure (any failure, following a Change of Control) by the Company tocomply with any provision of Section 3 of this Employment Agreement, otherthan a failure that is not taken in bad faith and is remedied by the Companywithin 30 days after receipt of written notice thereof from the Executive;

 

C.                                     anyrequirement by the Company that the Executive’s services be rendered primarilyat a location or locations other than that provided for in paragraph (d) of Section 2of this Employment Agreement, other than normal business travel;

 

D.                                    anypurported termination of the Executive’s employment by the Company for a reasonor in a manner not expressly permitted by this Employment Agreement; or

 

E.                                      anyfailure by the Company to comply with paragraph (c) of Section 9 of this EmploymentAgreement.

 

In addition, following aChange of Control, a termination by the Executive for any reason during the30-day period immediately following the first anniversary of the Change ofControl shall be deemed to be a termination for Good Reason for all purposes ofthis Employment Agreement.

 

(ii)                                  Atermination of employment by the Executive for Good Reason shall be effectuatedby giving the Company written notice (“Notice of Termination for Good

 

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Reason”) of thetermination, setting forth in reasonable detail the specific conduct of theCompany that constitutes Good Reason and the specific provision(s) of thisEmployment Agreement on which the Executive relies.  A termination of employment by the Executivefor Good Reason shall be effective on the fifth business day following the datewhen the Notice of Termination for Good Reason is given, unless the notice setsforth a later date (which date shall in no event be later than 30 days afterthe notice is given).

 

(iii)                               Atermination of the Executive’s employment by the Executive without Good Reasonshall be effected by giving the Company at least 10 business days’ advancewritten notice of the termination.

 

(d)                                 Dateof Termination.  The “Date of Termination”means the date of the Executive’s death, the Disability Effective Date, thedate the termination of the Executive’s employment by the Company for Cause orby the Executive for Good Reason or without Good Reason, as the case may be, iseffective.

 

5.                                       Obligationsof the Company upon Termination.

 

(a)  By the Company Other Than for Cause, Deathor Disability or By the Executive for Good Reason.  If, during the Employment Period, the Companyterminates the Executive’s employment, other than for Cause or Disability or byreason of the Executive’s death, or the Executive terminates employment forGood 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 beconsideration for the Executive’s undertaking not to breach the terms of thecovenants contained in Section 8 below. The Company shall also provide the Executive with all benefits due inaccordance with the terms of any applicable plans and programs of the Companyand 

 

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shall also pay to theExecutive, 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 BaseSalary through the Date of Termination that has not yet been paid, (2) anamount representing the Annual Bonus for the year of termination based ontarget, and multiplying that amount by a fraction, the numerator of which isthe number of days in the current fiscal year through the Date of Termination,and the denominator of which is 365 (the “Annual Bonus Amount”); (3) theDeferred Compensation and any other compensation previously deferred by theExecutive (together with any accrued interest or earnings thereon) that has notyet been paid; and (4) any accrued but unpaid Annual Bonuses and vacation pay;provided, however, that the Company’s obligation to make any payments underthis Section to the extent any such payment shall not have accrued as ofthe day before the Date of Termination shall also be conditioned upon theExecutive’s execution, and non-revocation, of a written release, substantiallyin the form attached hereto as Annex 1, (the “Release”), of any and all claimsagainst the Company and all related parties with respect to all matters arisingout of the Executive’s employment by the Company (other than any entitlementsunder the terms of this Employment Agreement or under any other plans orprograms of the Company in which the Executive participated and under which theExecutive has accrued a benefit), or the termination thereof.

 

Notwithstanding theforegoing, in the event payment is due to the Executive under this Section followinga Change of Control, then conditioned upon the Executive’s execution, andnon-revocation, of the Release and the Executive not breaching the terms of thecovenants contained in Section 8 below, the Executive, in lieu of the amountsspecified in the first sentence above, shall receive in a lump sum in cashwithin 30 days after the Date of Termination equal to 3

 

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multiplied by the sum ofthe Executive’s Base Salary and the Annual bonus paid to the Employee for thelast full fiscal year (if any) ending during the Employment Period or, ifhigher, the Annual Bonus paid to the Employee for the last full fiscal yearprior to the Change of Control.  Fiftypercent of such amount shall be consideration for the Executive’s undertakingnot to breach the terms of the covenants contained in Section 8below.  In addition, the Executive shallalso be entitled in the case of the Deferred Compensation and any othercompensation previously deferred by the Executive, to a lump sum equal to allamounts previously deferred (together with any accrued interest thereon) andnot yet paid by the Company, and any accrued vacation pay not yet paid by theCompany.  For the remainder of theEmployment Period, or such longer period as any plan, program, practice orpolicy may provide, the Company shall continue benefits to the Employee and/orthe Employee’s family at least equal to those which would have been provided tothem in accordance with the plans, programs, practices and policies describedin Section 3 of this Employment Agreement if the Employee’s employment hadnot been terminated, including health insurance and life insurance, inaccordance with the most favorable plans, practices, programs or policies ofthe Company and its subsidiaries during the 90-day period immediately precedingthe date on which the Change of Control occurs or, if more favorable to theEmployee, as in effect at any time thereafter with respect to other keyemployees and their families and for purposes of eligibility for retireebenefits pursuant to such plans, practices, programs and policies, the Employeeshall be considered to have remained employed until the end of the EmploymentPeriod and to have retired on the last day of such period.

 

(b)                                 Deathor Disability.  If the Executive’semployment is terminated by reason of the Executive’s death or Disabilityduring the Employment Period, the Company, in addition to fulfilling itsobligations under Section 3(a) hereof, shall pay the Accrued Obligationsto

 

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the Executive or theExecutive’s estate or legal representative, as applicable, in a lump sum incash within 30 days after the Date of Termination, and the Company shall haveno further obligations under this Employment Agreement other than for anyentitlements under the terms any other plans or programs of the Company inwhich the Executive participated and under which the Executive has accrued abenefit.

 

(c)                                  Cause;Other than for Good Reason.  If theExecutive’s employment is terminated by the Company for Cause during theEmployment Period, the Company shall pay the Executive the Annual Base Salarythrough the Date of Termination, the amount of the Deferred compensation andany other compensation previously deferred by the Executive (together with anyaccrued 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, andthe Company shall have no further obligations under this Employment Agreementother than for any entitlements under the terms any other plans or programs ofthe Company in which the Executive participated and under which the Executivehas accrued a benefit.  If the Executivevoluntarily terminates employment during the Employment Period, other than forGood Reason, the Company shall pay the Accrued Obligations to the Executive ina lump sum in cash within 30 days of the Date of Termination, and the Companyshall have no further obligations under this Employment Agreement other thanfor any entitlements under the terms any other plans or programs of the Companyin which the Executive participated and under which the Executive has accrued abenefit.

 

6.                                       Non-exclusivityof Rights.  Nothing in thisEmployment Agreement shall prevent or limit the Executive’s continuing orfuture participation in any plan, program, policy or practice provided by theCompany or any of its affiliated companies for which the Executive may

 

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qualify, nor, subject to Section 13,shall anything in this Employment Agreement limit or otherwise affect suchrights as the Executive may have under any contract or agreement with theCompany or any of its affiliated companies. Vested benefits and other amounts that the Executive is otherwiseentitled to receive under any plan, policy, practice or program of, or anycontract or agreement with, the Company or any of its affiliated companies onor 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 asexplicitly modified by this Employment Agreement.

 

7.                                       NoMitigation.  In no event shall theExecutive be obligated to seek other employment or take any other action by wayof mitigation of the amounts payable to the Executive under any of theprovisions of this Employment Agreement and such amounts shall not be reduced,regardless of whether the Executive obtains other employment.

 

8.                                       ConfidentialInformation; Non-solicitation; Non-competition; No Conflict.  In exchange for the Company agreeing toaccelerated vesting and exercisability of the Incentive Option upon any of theTriggering Events and the payment to the Executive of fifty percent of his BaseSalary under Section 3(a) hereof for the balance of the Employment Periodor fifty percent of the lump sum payment in lieu of Base Salary provided under Section 5in the event of Executive’s termination of employment following a Change ofControl, the Executive agrees as follows:

 

(a)                                  TheExecutive shall hold in a fiduciary capacity for the benefit of the Company allsecret or confidential information, knowledge or data, customer information,supplier information, cost and pricing information, marketing and salestechniques, strategies and programs, computer programs and software andfinancial information relating to the Company or any of its affiliatedcompanies and their respective businesses that the Executive obtains during the

 

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Executive’s employment bythe 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”).  TheExecutive shall not communicate, divulge or disseminate ConfidentialInformation at any time during or after the Executive’s employment with theCompany, except in the good faith performance of his duties hereunder, with theprior written consent of the Company or as otherwise required by law or legalprocess.  In no event shall an assertedviolation of the provisions of this paragraph (a) of Section 8 constitutea basis for deferring or withholding any amounts otherwise payable to theExecutive under this Employment Agreement.

 

(b)                                 Untilthe later of (i) the end of the Consulting Period or (ii) the secondanniversary of the expiration or termination of the Executive’s employment withthe Company, the Executive will not, except with the prior written consent ofthe Board, directly or indirectly, own, manage, operate, join, control, financeor participate in the ownership, management, operation, control or financingof, or be connected as an officer, director, employee, partner, principal,agent, representative, consultant or otherwise with, or use or permit Executive’sname to be used in connection with, any business or enterprise which is engagedin any business that is competitive with any business or enterprise in whichthe Company is engaged at the Date of Termination or expiration of theEmployment Period.  In addition, theExecutive agrees that he will not, for a period of two years after theexpiration or termination of the Executive’s employment with the Company,without the prior written consent of the Company, whether directly orindirectly, employ, whether as an employee, officer, director, agent,consultant or independent contractor, or solicit the employment of, anymanagerial or higher level person who is or at any time during the previoustwelve months was an employee, representative, officer or director of theCompany or any of its subsidiaries.

 

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(c)                                  TheExecutive represents to the Company that neither his continuation of employmenthereunder nor the performance of his duties hereunder conflicts with anycontractual commitment on his part to any third party or violates or interfereswith any rights of any third party.

 

(d)                                 TheExecutive acknowledges and agrees that the restrictions contained in this Section arereasonable and necessary to protect and preserve the legitimate interests,properties, goodwill and business of the Company, that the Company would nothave entered into this Employment Agreement in the absence of such restrictionsand that irreparable injury will be suffered by the Company should theExecutive breach any of those provisions. Executive represents and acknowledges that (i) the Executive has beenadvised by the Company to consult Executive’s own legal counsel in respect ofthis Employment Agreement, and (ii) that the Executive has had fullopportunity, prior to execution of this Employment Agreement, to reviewthoroughly this Employment Agreement with the Executive’s counsel.  The Executive further acknowledges and agreesthat a breach of any of the restrictions in this Section cannot beadequately compensated by monetary damages. The Executive agrees that the Executive’s right to the paymentsspecified above in consideration for his undertakings under this Section shallbe forfeited, the Executive’s right to exercise the Incentive Option and theNew Options****shall cease and Company shall beentitled to preliminary and permanent injunctive relief, without the necessityof 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 inaddition to any other rights or remedies to which the Company may be entitled;provided, however, that the foregoing remedies shall be conditioned upon theCompany providing the Executive with at least 30 days written notice of itsgood faith belief that a violation of the Executive’s undertakings hereunderhas occurred and

 

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Executive failing tocease any such prohibited activity within 30 days after such written notice isgiven.  In the event that any of theprovisions of this Section should ever be adjudicated to exceed the time,geographic, service, or other limitations permitted by applicable law in anyjurisdiction, it is the intention of the parties that the provision shall beamended to the extent of the maximum time, geographic, service, or otherlimitations permitted by applicable law, that such amendment shall apply onlywithin the jurisdiction of the court that made such adjudication and that theprovision 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 thisSection, including without limitation, any action commenced by the Company forpreliminary and permanent injunctive relief and other equitable relief, may bebrought in the United States District Court for the District of Delaware, or ifsuch court does not have jurisdiction or will not accept jurisdiction, in anycourt of general jurisdiction in Wilmington, Delaware, (ii) consents to thenon-exclusive jurisdiction of any such court in any such suit, action orproceeding, and (iii) waives any objection which the Executive may have to thelaying of venue of any such suit, action or proceeding in any such court.  The Executive also irrevocably andunconditionally consents to the service of any process, pleadings, notices orother papers in a manner permitted by the notice provisions of Section 13hereof.

 

9.                                       Successors.

 

(a)                                  ThisEmployment Agreement is personal to the Executive and, without the priorwritten consent of the Company, shall not be assignable by the Executiveotherwise than by will or the laws of descent and distribution.  This Employment Agreement shall inure to thebenefit of and be enforceable by the Executive’s legal representatives.

 

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(b)                                 ThisEmployment Agreement shall inure to the benefit of and be binding upon theCompany and its successors and assigns.

 

(c)                                  TheCompany shall require any successor (whether direct or indirect, by purchase,merger, consolidation or otherwise) to all or substantially all of the businessand/or assets of the Company expressly to assume and agree to perform thisEmployment Agreement in the same manner and to the same extent that the Companywould have been required to perform it if no such succession had taken place.  As used in this Employment Agreement, “Company”shall mean both the Company as defined above and any such successor thatassumes and agrees to perform this Employment Agreement, by operation of law orotherwise.

 

10.                                 Changeof Control.

 

(a)                                  Forthe purpose of this Employment Agreement, a “Change of Control” shall mean:

 

(i)                                     Theacquisition by any person, entity or group, within the meaning of Section 13(d)(3)or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”),(excluding, for this purpose, (A) the Company or its subsidiaries, (B) anyemployee benefit plan of the Company or its subsidiaries which acquiresbeneficial ownership of voting securities of the Company or (C) Barron Hiltonor the Conrad N. Hilton Fund, collectively the “Hilton Interests”), ofbeneficial ownership, (within the meaning of Rule 13d-3 promulgated under theExchange Act) of 20% or more of either the then outstanding shares of commonstock or the combined voting power of the Company’s then outstanding votingsecurities entitled to vote generally in the election of directors; provided,however, thatnotwithstanding the foregoing, a Change of Control of the Company shall not

 

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be deemed to occur solely because any person acquires beneficialownership of more than 20% of such common stock or the voting securities of theCompany as a result of the acquisition of common stock or voting securities bytheCompany which reduces the amount of common stock or votingsecurities; provided, that if after such acquisition by the Company such personbecomes the beneficial owner of additional common stock or voting securitiesthat increases the percentage of common stock or voting securities beneficiallyowned by such person, a Change of Control of the Company shall then occur;or

 

(ii)                                  Individualswho, as of the date hereof, constitute the Board (as of the date hereof the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board,provided that any person becoming a director subsequent to the date hereofwhose election, or nomination for election by the Company’s shareholders, wasapproved by a vote of at least a majority of the directors then comprising theIncumbent Board (other than an election or nomination of an individual whoseinitial assumption of office is in connection with an actual or threatenedelection contest relating to the election of the Directors of the Company, assuch terms are used in Rule 14a-11 of Regulation 14A promulgated under the ExchangeAct) shall be, for purposes of this Agreement, considered as though such personwere a member of the Incumbent Board; or

 

(iii)                               Approvalby the stockholders of the Company of (A) a reorganization, merger orconsolidation, in each case, with respect to which persons who were thestockholders of the Company immediately prior to such reorganization, merger orconsolidation do not, immediately thereafter, own more than 60% of the combinedvoting

 

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power entitled to votegenerally in the election of directors of the reorganized, merged orconsolidated company’s then outstanding voting securities, or (B) a liquidationor dissolution of the Company or (C) the sale of all or substantially all ofthe assets of the Company.

 

(b)                                 Anythingin this Employment Agreement to the contrary notwithstanding, in the event thatit shall be determined that any payment or distribution by the Company to orfor the benefit of the Executive, whether paid or payable or distributed ordistributable pursuant to the terms of this Employment Agreement or otherwise(the “Payment”), would constitute an “excess parachute payment” within themeaning 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 anyexcise tax imposed under Section 4999 of the Code, and any federal, stateand local income and employment tax and excise tax imposed upon the Gross-UpPayment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, theExecutive shall be deemed to pay federal income tax and employment taxes at thehighest marginal rate of federal income and employment taxation in the calendaryear in which the Gross-Up Payment is to be made and state and local incometaxes at the highest marginal rate of taxation in the state and locality of theExecutive’s residence on the Termination Date, net of the maximum reduction infederal income taxes that may be obtained from the deduction of such state andlocal taxes.

 

(c)                                  Alldeterminations to be made under this Section 10 shall be made by theCompany’s independent public accountant immediately prior to the Change ofControl (the “Accounting Firm”), which firm shall provide its determinationsand any supporting calculations both to the Company and the Executive within 10days of the Termination Date.  Any such 

 

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determination by theAccounting Firm shall be binding upon the Company and the Executive.  Within five days after the Accounting Firm’sdetermination, the Company shall pay (or cause to be paid) or distribute (orcause to be distributed) to or for the benefit of the Executive such amounts asare then due to the Executive under this Employment Agreement.

 

(d)                                 TheExecutive shall notify the Company in writing of any claim by the InternalRevenue Service that, if successful, would require the payment by the Companyof the Gross-Up Payment.  Such notificationshall be given as soon as practicable but no later than ten business days afterthe Executive knows of such claim and shall apprise the Company of the natureof such claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim priorto the expiration of the thirty day period following the date on which it givessuch notice to the Company (or such shorter period ending on the date that anypayment of taxes with respect to such claim is due).  If the Company notifies the Executive inwriting prior to the expiration of such period that it desires to contest suchclaim, the Executive shall:

 

(i)                                     givethe Company any information reasonably requested by the Company relating tosuch claim,

 

(ii)                                  takesuch action in connection with contesting such claim as the Company shallreasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such claim by an attorneyreasonably selected by the company,

 

(iii)                               cooperatewith the Company in good faith in order to effectively contest such claim, and

 

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(iv)                              permitthe Company to participate in any proceedings relating to such claim;

 

provided, however, thatthe Company shall bear and pay directly all costs and expenses (includingadditional interest and penalties) incurred in connection with such contest andshall indemnify and hold the Executive harmless, on an after-tax basis, for anyExcise Tax, income tax or employment tax, including interest and penalties,with respect thereto, imposed as a result of such representation and payment ofcosts and expenses.  Without limitationon the foregoing provisions of this Section 10, the Company shall controlall proceedings taken in connection with such contest and, at its sole option,may pursue or forego any and all administrative appeals, proceedings, hearingand conferences with the taxing authority in respect of such claim and may, atits sole option, either direct the Executive to pay the tax claimed and sue fora refund or contest  the claim in anypermissible manner, and the Executive agrees to prosecute such contest to atermination before any administrative tribunal, in a court of initialjurisdiction and in one or more appellate courts, as the Company shalldetermine; provided further, however, that if the Company directs the Executiveto pay such claim and sue for a refund the Company shall advance the amount ofsuch payment to the Executive, on an interest-free basis and shall indemnifyand hold the Executive harmless, on an after-tax basis, from any Excise Tax,income tax or employment tax, including interest or penalties with respectthereto, imposed with respect to such advance or with respect to any imputed incomewith respect to such advance; and provided further that any extension of thestatute of limitations relating to payment of taxes for the taxable year of theExecutive with respect to which such contested amount is claimed to be due islimited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited toissues with respect to which a Gross-Up Payment would be 

 

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payable hereunder and theExecutive shall be entitled to settle or contest, as the case may be, any otherissue  raised by the Internal RevenueService or any other taxing authority.

 

(e)                                  If,after the receipt by the Executive of an amount advanced by the Companypursuant to this Section, the Executive becomes entitled to receive any refundwith respect to such claim, the Executive shall (subject to the Company’scomplying with the requirements of subsection (c)) promptly pay to theCompany the amount of such refund (together with any interest paid or creditedthereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by theCompany pursuant to this Section, a determination is made that the Executiveshall not be entitled to any refund with respect to such claim and the Companydoes not notify the Executive in writing of its intent to contest such denialof refund prior to the expiration of thirty days after such determination, thensuch advance shall be forgiven and shall not be required to be repaid and theamount of such advance shall offset, to the extent thereof, the amount ofGross-Up Payment required to be paid.

 

(f)                                    Allof the fees and expenses of the Accounting Firm in performing thedeterminations referred to in subsections (b) and (c) above shall be bornesolely by the Company.  The Companyagrees to indemnify and hold harmless the Accounting Firm of and from any andall claims, damages and expenses resulting from or relating to itsdeterminations pursuant to subsections (b) and (c) above, except for claims,damages or expenses resulting from the gross negligence or wilful misconduct ofthe Accounting Firm.

 

(g)                                 Followinga Change of Control and for a period of not less than three years after theDate of Termination, the Executive be entitled to indemnification and, to theextent available on commercially reasonable terms, insurance coverage therefor,with respect to the various

 

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liabilities as to whichthe Executive has been customarily indemnified prior to the Change of Control.

 

11.                                 Arbitration.  The Company and the Executive mutuallyconsent to the resolution by arbitration, in accordance with the National Rulesfor the Resolution of Employment Disputes of the American ArbitrationAssociation, of all claims or controversies arising out of the Executive’semployment (or its termination) that the Company may have against the Executiveor that the Executive may have against the Company or against its officers,directors, shareholders, employees or agents in their capacity as such otherthan a claim which is primarily for an injunction or other equitablerelief.  The Company and the Executiveshall equally share the fees and costs of the arbitrator, and each party shall bearits own costs in connection with any arbitration, unless the Executive shallprevail in an arbitration proceeding as to any material issue, in which casethe Company shall reimburse the Executive for all reasonable costs, expensesand fees incurred in connection with such arbitration.

 

12.                                 LegalFees.  The Company agrees to pay allreasonable legal fees incurred by the Executive in connection with thenegotiation and preparation of this Employment Agreement.

 

13.                                 Miscellaneous.

 

(a)                                  ThisEmployment Agreement shall be governed by, and construed in accordance with,the laws of the State of Delaware, without reference to principles of conflictof laws.  The captions of this EmploymentAgreement are not part of the provisions hereof and shall have no force oreffect.  This Employment Agreement maynot be amended or modified except by a written agreement executed by theparties hereto or their respective successors and legal representatives.

 

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(b)                                 Allnotices and other communications under this Employment Agreement shall be inwriting and shall be given by hand to the other party or by registered orcertified mail, return receipt requested, postage prepaid, addressed asfollows:

 

If to theExecutive:

 

c/o Debevoise &Plimpton

875 Third Avenue

New York, NY 10022

Attention:  Lawrence Cagney

 

If to the Company:

 

9336 Civic Center Drive

Beverly Hills, CA 90210

 

Attention:  General Counsel

 

With a requiredcopy to:

Morgan, Lewis &Bockius LLP

1701 Market Street

Philadelphia, PA  19103-6993

Attention:  Robert J. Lichtenstein

 

or to such other addressas either party furnishes to the other in writing in accordance with thisparagraph (b) of Section 13.  Notices and communications shall be effective when actually received bythe addressee.

 

(c)                                  Theinvalidity or unenforceability of any provision of this Employment Agreementshall not affect the validity or enforceability of any other provision of thisEmployment Agreement.  If any provisionof this Employment Agreement shall be held invalid or unenforceable in part,the remaining portion of such provision, together with all other provisions ofthis Employment Agreement, shall remain valid and enforceable and continue infull force and effect to the fullest extent consistent with law.

 

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(d)                                 Notwithstandingany other provision of this Employment Agreement, the Company may withhold fromamounts payable under this Employment Agreement all federal, state, local andforeign taxes that are required to be withheld by applicable laws orregulations.

 

(e)                                  TheExecutive’s or the Company’s failure to insist upon strict compliance with anyprovision of, or to assert any right under, this Employment Agreement(including, without limitation, the right of the Executive to terminateemployment for Good Reason pursuant to paragraph (c) of Section 5 of thisEmployment Agreement) shall not be deemed to be a waiver of such provision orright or of any other provision of or right under this Employment Agreement.

 

(f)                                    ThisEmployment Agreement may be executed in several counterparts, each of whichshall be deemed an original, and said counterparts shall constitute but one andthe same instrument.

 

14.                                 PriorAgreements.  This EmploymentAgreement supersedes all prior agreements, except for the provisions of Section 14of the employment agreement between the Executive and the Company dated as of December 31,1998, until the rights under that Section have expired, and otherwise setsforth the entire understanding among the parties hereto with respect to thesubject matter hereof.

 

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IN WITNESS WHEREOF, theExecutive has hereunto set the Executive’s hand and, pursuant to theauthorization of its Board of Directors, the Company has caused this EmploymentAgreement to be executed in its name on its behalf, all as of the day and yearfirst above written.

 

 
| HILTON HOTELS  CORPORATION |                      |
|----------------------------|---------------------------|
|                       |                      |
|                       |                      |
| By                         | /s/  Madeleine A. Kleiner |   | /s/  Stephen F. Bollenbach |   |
|                       | Stephen F. Bollenbach     |
|                            |                           |  |  |  |

 

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