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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE For the Quarter Ended July 31, 2000
Commission File Number 1-4925
HARCOURT GENERAL, INC.
Delaware
04-1619609 27 Boylston Street, Chestnut Hill, MA 02467 (617) 232-8200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO
As of September 5, 2000, the number of outstanding shares of each of the issuer's classes of common stock was: Class
Outstanding Shares HARCOURT GENERAL, INC. I N D E X Part I. Financial Information
Page Number Item 1. Condensed Consolidated Balance Sheets as of Condensed Consolidated Statements of Earnings Condensed Consolidated Statements of Cash Flows Notes to Condensed Consolidated Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Part II. Other Information Item 6. Exhibits and reports on Form 8-K 1
4 Signatures
15 Exhibit 10.1 HARCOURT GENERAL, INC. (In thousands)
July 31, October 31, Assets See Notes to Condensed Consolidated Financial Statements. 1 HARCOURT GENERAL, INC. (In thousands except
ACT OF 1934
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
Common Stock, $1.00 Par Value 53,177,367
Class B Stock, $1.00 Par Value 19,970,613
July 31, 2000 and October 31, 1999
1
for the Three and Nine Months Ended July 31, 2000
and 1999
2
for the Nine Months Ended July 31, 2000
and 1999
3
Condition and Results of Operations
9-13
Exhibit 10.2
Exhibit 10.3 (a-n)
Exhibit 27.1
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
2000 1999
Current assets:
Cash and equivalents $ 39,670
$ 24,144
Accounts receivable, net 617,710
473,577
Inventories
244,264 212,771
Deferred income taxes 80,716
80,716
Other current assets 28,633
39,549
Total current assets 1,010,993  
; 830,757
Property and equipment, net 125,441 128,804
Other assets:
Prepublication costs, net 356,904
322,346
Investment in The Neiman Marcus Group, Inc. 164,622 119,414
Goodwill, net
1,375,894 1,409,485
Other intangible assets, net 44,640 52,538
Other
76,018 86,761
Total other assets 2,018,078
1,990,544
Total assets $
3,154,512 $ 2,950,105
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 27,493 $
6,868
Accounts payable
228,148 203,521
Other current liabilities 506,626
483,168
Total current liabilities 762,267
693,557
Long-term liabilities:
Notes and debentures 1,407,008
1,356,804
Other long-term liabilities 160,053 182,842
Deferred income taxes 55,946
55,946
Total long-term liabilities 1,623,007 1,595,592
Minority interest
- 19,093
Shareholders' equity:
Preferred stock
791 863
Common stock
73,134 71,167
Paid-in capital
368,147 317,037
Accumulated other comprehensive income 21,616 2,269
Retained earnings 305,550
250,527
Total shareholders' equity 769,238
641,863
Total liabilities and shareholders' equity $ 3,154,512 $ 2,950,105
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
for per share amounts) Nine Months Three Months
Ended July
31, Ended July 31,
2000
1999 2000 1999
Revenues $ 1,684,402 $1,459,058 $871,182 $ 693,020
Costs applicable to revenues 561,479 473,920 250,182 187,534
Selling, general and
administrative expenses 895,607 829,362 328,767 285,691
Corporate expenses 17,480 16,205 6,473
5,448
Operating earnings 209,836 139,571 285,760 214,347
Investment and other income 25,971 11,969 16,539 7,465
Interest expense (78,593) (79,371) (27,027) (27,322)
Earnings from continuing operations
before income taxes and
minority interest 157,214 72,169 275,272 194,490
Income tax expense (58,169) (25,142) (101,850) (73,050)
Earnings from continuing operations
before minority interest 99,045 47,027 173,422 121,440
Minority interest in net losses
of subsidiaries 885 3,492
70 748
Earnings from continuing operations 99,930 50,519 173,492 122,188
Earnings from discontinued specialty
retail operations, net - 46,899
- 18,305
Net earnings $ 99,930 $ 97,418 $173,492
$140,493
Weighted average number of
common and common equivalent
shares outstanding:
Basic 71,541
71,093 72,653 71,133
Diluted 72,748
72,160 73,786 72,185
Basic earnings per common share:
Continuing operations $ 1.37 $ .70 $ 2.37 $
1.71
Discontinued specialty retail
operations -
.66 - .26
Basic net earnings $ 1.37 $ 1.36 $ 2.37
$ 1.97
Diluted earnings per common share:
Continuing operations $ 1.37 $ .70 $ 2.35 $
1.70
Discontinued specialty retail
operations -
.65 - .25
Diluted net earnings $ 1.37 $ 1.35 $ 2.35
$ 1.95
Dividends per share:
Common Stock $ .63 $ .60
$ .21 $ .20
Class B Stock $ .567 $ .54
$ .189 $ .18
Series A Stock $ .8478 $ .6825
$ .2826 $ .2275
See Notes to Condensed Consolidated Financial Statements.
2
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months
Ended July 31,
2000 1999
Cash flows from operating activities:
Net earnings
$ 99,930 $ 97,418
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Discontinued specialty retail operations - (46,899)
Amortization of prepublication costs 111,619 95,196
Depreciation and other amortization 74,549 94,023
Gain on sale of securities (7,644)
(3,021)
Gain on sale of business and other (15,530) (6,812)
Minority interest
(885) (3,492)
Other items
1,887 2,585
Changes in assets and liabilities:
Accounts receivable (148,813)
(46,655)
Inventories
(31,608) (23,590)
Other current assets 2,406
(16,809)
Accounts payable and other current
liabilities
39,022 2,749
Net cash provided by operating activities 124,933 144,693
Cash flows from investing activities:
Capital expenditures (172,749)
(161,316)
Proceeds from sale of securities 12,394 8,271
Proceeds from sale of business 21,000 13,157
Acquisitions and other investing activities (48,992) (34,753)
Net cash used for investing activities (188,347) (174,641)
Cash flows from financing activities:
Proceeds of revolving credit
facilities, net 195,540
35,050
Repayment of debt (125,000)
-
Proceeds from issuance of stock 50,000
-
Cash dividends paid (44,907)
(42,080)
Other equity transactions 3,307
1,573
Net cash provided by (used for) 78,940 (5,457
)
financing activities
Cash and equivalents
Increase (decrease) during the period 15,526 (35,405)
Beginning balance 24,144
58,556
Ending balance $ 39,670
$ 23,151
See Notes to Condensed Consolidated Financial Statements.
3
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The Condensed Consolidated Financial Statements of Harcourt General, Inc. (the Company or Harcourt General) are submitted in response to the requirements of Form 10-Q and should be read in conjunction with the Consolidated Financial Statements in the Company's Annual Report on Form 10-K. In the opinion of management, these statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The consolidated financial statements include the accounts of Harcourt General and its majority-owned subsidiaries. The Company's consolidated financial statements for the three and nine months ended July 31, 1999 have been restated to reflect the specialty retail operations as a discontinued operation.
Harcourt General is a leading global multiple-media publisher and service provider for the educational, assessment, training and professional information markets. All significant intercompany accounts and transactions are eliminated. Except as indicated,
amounts reflected in the consolidated financial statements or disclosed in the notes to the consolidated financial statements relate to the Company's continuing operations, and prior period amounts have been restated and reclassified to conform with the
current presentation.
The Company's businesses are seasonal in nature, and historically the results of operations for these periods have not been indicative of the results for the full year.
2. Earnings per share
Pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share," the earnings from continuing operations used in computing basic and diluted earnings per share is as presented in the table below:
Nine Months Ended Three Months Ended
(In thousands) July 31, July 31,
July 31, July 31,
2000 1999 2000 1999
Earnings from continuing
operations $99,930 $50,519
$173,492 $ 122,188
Less: dividends on Series A
Cumulative Convertible Stock (681) (610) (223)
(201)
Less: effect of equity swap
agreement (1,078)
- (1,078) -
Earnings from continuing operations
for computation of
basic EPS $98,171 $ 49,909
$172,191 $ 121,987
Add: dividends on assumed
conversion of Series A
Cumulative Convertible
Stock and other 681
610 223 201
Add: effect of equity
swap agreement 1,078 -
1,078 -
Earnings from continuing
operations for
computation of diluted
EPS $99,930
$ 50,519 $173,492 $ 122,188
4
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Earnings per share (continued)
Nine Months Ended Three
Months Ended
July 31, July 31, July
31, July 31,
2000 199
9 2000 1999
(In Thousands)
Shares for computation of
basic EPS 71,541 71,093 72,653
71,133
Add: assumed conversion of
Series A Cumulative
Convertible Stock 1,072 989 1,050
974
Add: effect of dilutive stock
options and nonvested stock
under common stock
incentive plans 338 78 608
78
Less: effect of
equity swap agreement (203) - (525)
-
Shares for computation of
diluted EPS 72,748 72,160 73,786
72,185
In the three months ended July 31, 2000, all outstanding options to purchase shares of common stock were included in the computation of diluted EPS. In the nine months ended July 31, 2000, options to purchase 745,785 shares of common stock were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the shares. In the nine months and three months ended July 31,1999, options to purchase 604,600 shares of common stock were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the shares.
3. Comprehensive income
Total comprehensive income amounted to $119.3 million and $99.9 million for the nine months ended July 31, 2000 and 1999, respectively. Comprehensive income differs from net earnings primarily due to foreign currency translation adjustments and unrealized gains or losses, net of taxes, on the Company's available-for-sale securities, less the reclassification for realized gains or losses included in net earnings.
4. Operating segments
The Company has four reportable segments: Education Group, Higher Education Group, Corporate and Professional Services Group and Worldwide Scientific, Technical and Medical (STM) Group. The Education Group consists of the Company's K-12 and supplemental and trade publishing operations. The Higher Education Group includes college, distance learning and graduate test preparation businesses. The Corporate and Professional Services Group is comprised of testing and related services, career counseling and technology-based IT and human resources training. The Worldwide STM Group includes the Company's scientific, technical and medical publishing businesses and its international publishing and distribution operations. Other includes unallocated corporate items. Interest expense is not allocated to segments.
5
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Operating segments (continued)
The following tables set forth the information for the Company's reportable segments for the nine months and three months ended July 31:
(In thousands)
Nine Months Ended Three Months Ended
July 31, July 31, July 31, July 31,
2000 1999 2000 1999
REVENUES:
Education Group $ 512,571 $ 369,037
$388,265 $263,296
Higher Education Group 263,834 261,213 128,800
120,365
Corporate and Professional Services Group 382,471 337,439 159,832 129,222
Worldwide STM Group 525,526 491,369
194,285 180,137
Total $1,684,402
$1,459,058 $871,182 $693,020
OPERATING EARNINGS:
Education Group $ 92,867 $ 39,778
$188,103 $125,901
Higher Education Group 33,061 27,744 43,043
38,129
Corporate and Professional Services Group 12,141 18,907 11,652 12,826
Worldwide STM Group 89,247 69,347
49,435 42,939
Other (17,480)
(16,205) (6,473) (5,448)
Total $ 209,836
$ 139,571 $285,760 $214,347
5. Acquisition liabilities
At October 31, 1999, $56.4 million of acquisition liabilities was included in other current liabilities representing facility exit costs of $32.0 million, severance and employee benefit obligations of $8.3 million, unfulfilled contractual obligations of $6.1 million and other obligations of $10.0 million. In the nine months ended July 31, 2000, approximately $11.2 million of payments were charged against these acquisition liabilities. There was no change in estimate during the nine months ended July 31, 2000. At July 31, 2000, $45.2 million of acquisition liabilities is included in other current liabilities consisting primarily of facility exit costs of $29.9 million, severance and employee benefit obligations of $4.8 million, unfulfilled contractual obligations of $6.0 million and other obligations of $4.5 million.
6. Issuance of common stock
On April 20, 2000 the Company issued 1,372,213 shares of common stock at a price of $36.44 per share in a private placement to Salomon Smith Barney Inc., acting as agent for Citibank, N.A. The net proceeds of $50 million were used to partially finance the repayment of the Company's subordinated notes, which matured in March 2000.
Concurrently with the offering, the Company entered into an equity swap agreement with Citibank, N.A. for a notional amount of $50.0 million. This agreement will be settled in either cash or additional shares, solely at the Company's option, based on the price of the Company's stock at the settlement dates. The agreement has a maturity date of October 22, 2000 and provides for earlier settlement in part or in full at the Company's option.
6
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Issuance of common stock (cont.)
The Company does not hold or issue derivative financial instruments for trading purposes. The Company is exposed to credit loss in the event of nonperformance by Citibank, N.A. on the equity swap; however, nonperformance is considered remote. The common stock issued and the related equity swap are accounted for together as an equity instrument. At settlement, the fair value of the equity swap will be recorded as an adjustment to paid-in capital.
7. Acquisitions
In May 2000, the Company completed the acquisition of the remaining one-third interest in MD Consult, an Internet clinical information source for physicians, for a cash purchase price of approximately $10.0 million. Harcourt General is now the sole owner of MD Consult. The acquisition has been accounted for by the purchase method of accounting. The excess of cost over estimated fair value of net assets acquired of $10.0 million was allocated to goodwill, which is amortized on a straight-line basis over 15 years.
In July 2000, the Company completed the acquisition of the remaining eight percent minority interest in NETg, a technology-based training business for information technology professionals, from the Gartner Group for a cash purchase price of approximately $36.0 million. As a result, Harcourt General is the sole owner of NETg. The acquisition has been accounted for under the purchase method of accounting. The excess of cost over estimated fair value of net assets acquired of $3.2 million was allocated to goodwill, which is amortized on a straight-line basis over 15 years.
8. Sale of Professional Publishing Business
In May 2000, the Company sold its professional publishing business for approximately $21.0 million in cash. The Company recorded a gain of $15.5 million, which is included in investment and other income.
9. Contingencies
In December 1993, the Company spun off its theatre operations to GC Companies, Inc. ("GCC"). Under the Reimbursement and Security Agreement between GCC and the Company, GCC granted to the Company a security interest in the stock of certain of its theatre subsidiaries to secure GCC's obligation to indemnify the Company from any losses which the Company may incur due to its secondary liability for theatre leases which were transferred to GCC as part of the spin-off. In addition, GCC agreed to certain financial covenants under the Reimbursement and Security Agreement. As of July 31, 2000, GCC's aggregate future rental payments due under theatre leases on which the Company is secondarily liable amounted to approximately $355 million.
7
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Contingencies (cont.)
The Company has waived certain financial covenants contained in the Reimbursement and Security Agreement and certain of GCC's other creditors have waived certain financial covenants contained in their agreements with GCC as of July 31, 2000. The Company believes that if GCC is unable to reach agreement with its creditors on acceptable amendments to such agreements, GCC will not be in compliance on October 31, 2000 with certain financial covenants contained in these agreements. There can be no assurance that GCC, the Company and GCC's creditors will be able to reach agreement on acceptable amendments to their existing agreements, or that GCC will be able to refinance any of its indebtedness or raise additional capital to repay any or all of such indebtedness.
In light of the foregoing, the Company anticipates that GCC may need to actively consider strategic alternatives, including a potential restructuring, recapitalization, bankruptcy reorganization or the sale of certain assets. The Company cannot predict the outcome of GCC's current financial situation, nor can the Company currently estimate its ultimate exposure under the theatre leases for which the Company is secondarily liable. Accordingly, no provision has been recorded in the financial statements. However, based on a number of factors, the Company believes that its ultimate liability will be significantly less than the aggregate future rental payments noted above. In the event GCC were subject to a bankruptcy reorganization, the Company believes the factors that could reduce its ultimate liability would include, but not be limited to, the following: the number of leases that would be rejected by GCC in a bankruptcy reorganization proceeding; the tax deductibility of the Company's payments pursuant to its liability for the leases; the Company's ability to mitigate its exposure under the leases for which it is liable; the Company's potential recovery of a portion of its liability for the leases from GCC; and the extended period of time over which the Company's liability for the lease obligations could be payable.
10. Strategic Alternatives
In June 2000, the Company announced that it has retained Goldman, Sachs & Co. to explore a range of strategic alternatives to enhance shareholder value, including the possible sale of the Company. There can be no assurance that a transaction will be consummated.
8
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table illustrates revenues and operating earnings by business segment for the nine months and three months ended July 31.
(In thousands)
 
; Nine Months Ended Three Months Ended
July 31, July 31, July 31, July 31,
2000 1999 2000 1999
REVENUES:
Education Group $ 512,571 $ 369,037
$388,265 $263,296
Higher Education Group 263,834 261,213 128,800
120,365
Corporate and Professional Services Group 382,471 337,439 159,832 129,222
Worldwide STM Group 525,526 491,369
194,285 180,137
Total $1,684,402
$1,459,058 $871,182 $693,020
OPERATING EARNINGS:
Education Group $ 92,867 $ 39,778
$188,103 $125,901
Higher Education Group 33,061 27,744 43,043
38,129
Corporate and Professional Services Group 12,141 18,907 11,652 12,826
Worldwide STM Group 89,247 69,347
49,435 42,939
Other (17,480)
(16,205) (6,473) (5,448)
Total $ 209,836
$ 139,571 $285,760 $214,347
Nine Months Ended July 31, 2000 Compared to Nine Months Ended July 31, 1999
Education Group
Revenues from the Education Group increased $143.5 million or 38.9% to $512.6 million in the first nine months of fiscal 2000. The increase was primarily attributable to higher elementary science, social studies and reading program sales, secondary reading program sales and higher sales at Steck-Vaughn, the Group's supplemental educational publishing business.
Operating earnings from the Education Group increased $53.1 million or 133.5% to $92.9 million in the first nine months of fiscal 2000. The increase was primarily due to the higher elementary and secondary program revenues. Operating earnings also increased as a result of lower amortization of intangible assets and lower administrative expenses.
Higher Education Group
Revenues from the Higher Education Group increased $2.6 million or 1.0% to $263.8 million in the first nine months of fiscal 2000. The increase was primarily due to higher sales of college titles, offset in part by the transfer of the Canadian business of Harcourt Learning Direct to the Worldwide STM Group as well as the 1999 sale of the Conviser CPA Review business.
Operating earnings from the Higher Education Group increased $5.3 million or 19.2% to $33.1 million in the first nine months of fiscal 2000. The increase was primarily due to the higher sales in the college business and lower operating expenses at Harcourt Learning Direct.
9
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Corporate and Professional Services Group
Revenues from the Corporate and Professional Services Group increased $45.0 million or 13.3% to $382.5 million in the nine months ended July 31, 2000. The increase was primarily attributable to higher scoring revenues at The Psychological Corporation, the Group's educational and clinical assessment business. To a lesser extent, the higher revenues resulted from increased sales at DBM, the Group's outplacement business.
Operating earnings from the Corporate and Professional Services Group decreased $6.8 million or 35.8% to $12.1 million. The decrease was primarily due to increased course development costs at NETg, as well as higher operating expenses at Harcourt Assessment Systems, Inc. related to expansion initiatives.
Worldwide Scientific, Technical and Medical (STM) Group
Revenues from the Worldwide STM Group increased $34.2 million or 7.0% to $525.5 million in the nine months ended July 31, 2000. The increase was primarily due to higher book sales at Harcourt Health Sciences and higher journal sales at Academic Press, the Group's scientific publisher.
Operating earnings from the Worldwide STM Group increased $19.9 million or 28.7% to $89.2 million in the nine months ended July 31, 2000. The increase was primarily due to the higher revenues at Harcourt Health Sciences, as well as lower general and administrative expenses resulting from the integration of Mosby. Higher journal sales at Academic Press also contributed to the increase.
Investment and other income
Investment and other income increased $14.0 million to $26.0 million in the nine months ended July 31, 2000. The increase resulted primarily from a gain of $15.5 million from the sale of the Company's professional publishing unit and a gain of $7.6 million from the sale of securities in the nine months ended July 31, 2000, as compared to a gain of $6.4 million from the sale of a business and a gain of $3.0 million from the sale of securities in the nine months ended July 31, 1999.
Interest expense
Interest expense decreased $.8 million to $78.6 million in the nine months ended July 31, 2000 primarily due to lower average outstanding borrowings.
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999
Education Group
Revenues from the Education Group increased $125.0 million or 47.5% to $388.3 million in the three months ended July 31, 2000. The increase was primarily attributable to higher elementary science, social studies and reading program sales, as well as higher secondary reading sales.
Operating earnings from the Education Group increased $62.2 million or 49.4% to $188.1 million in the three months ended July 31, 2000. The increase was primarily due to the higher elementary and secondary program revenues and lower operating expenses at Steck-Vaughn.
10
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999 (continued)
Higher Education Group
Revenues from the Higher Education Group increased $8.4 million or 7.0% to $128.8 million in the three months ended July 31, 2000. The increase was primarily due to higher sales of college titles, offset in part by the transfer of Harcourt Learning Direct's Canadian business to the Worldwide STM Group and the 1999 sale of the Conviser CPA Review business.
Operating earnings increased $4.9 million or 12.9% to $43.0 million in the three months ended July 31, 2000. The increase resulted primarily from higher revenues in the Group's college publishing business and lower operating expenses at Harcourt Learning Direct.
Corporate and Professional Services Group
Revenues from the Corporate and Professional Services Group increased $30.6 million or 23.7% to $159.8 million in the three months ended July 31, 2000. The increase was primarily attributable to higher scoring revenues at The Psychological Corporation and, to a lesser extent, higher sales at NETg.
Operating earnings at the Corporate and Professional Services Group were $11.7 million compared to $12.8 million in the prior year period. The decrease was primarily due to higher operating expenses at Harcourt Assessment Systems, Inc., as well as increased course development costs at NETg.
Worldwide STM Group
Revenues from the Worldwide STM Group increased $14.1 million or 7.9% to $194.3 million in the three months ended July 31, 2000. The increase was primarily due to higher book sales at Harcourt Health Sciences and higher journal sales at Academic Press.
Operating earnings from the Worldwide STM Group increased $6.5 million or 15.1% to $49.4 million in the three months ended July 31, 2000. The increase was primarily due to higher revenues at Harcourt Health Sciences and Academic Press as well as lower operating expenses at Academic Press.
Investment and other income
Investment and other income increased $9.1 million to $16.5 million in the three months ended July 31, 2000. The gain resulted primarily from a gain of $15.5 million from the sale of the company's professional publishing unit, as compared to a gain of $6.4 million from the sale of a business in the prior year period.
Interest expense
Interest expense decreased $.3 million in the three months ended July 31, 2000 primarily due to a slightly lower effective interest rate.
11
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by operating, investing and financing activities as presented in the Company's condensed consolidated statements of cash flows.
Cash provided by operating activities for the nine months ended July 31, 2000 was $124.9 million compared to $144.7 million in the prior year period. The cash provided by the Company's operations and borrowings under its revolving credit facility was sufficient to fund working capital, capital expenditures and the Company's dividend requirements. The most significant item affecting working capital was a seasonal increase of $148.8 million in accounts receivable, reflecting significantly higher revenues.
Cash flows used by investing activities were $188.3 million for the nine months ended July 31, 2000, consisting primarily of expenditures for prepublication costs. Capital expenditures are expected to approximate $240.0 million in fiscal 2000. In the first nine months of fiscal 2000 the Company recorded proceeds from the sale of securities of $12.4 million and proceeds from the sale of a business of $21.0 million.
On April 20, 2000 the Company issued 1,372,213 shares of common stock at a price of $36.44 per share in a private placement to Salomon Smith Barney Inc., acting as agent for Citibank, N.A. The net proceeds of $50 million were used to partially finance the repayment of the Company's subordinated notes, which matured in March 2000. Concurrently with the offering, the Company entered into an equity swap agreement with Citibank, N.A. for a notional amount of $50.0 million. This agreement will be settled in either cash or additional shares, solely at the Company's option, based on the price of the Company's stock at the settlement dates. The agreement has a maturity date of October 22, 2000 and provides for earlier settlement in part or in full at the Company's option.
During the quarter the Company acquired the one-third minority interest of MD Consult for $10.0 million and the remaining 8% minority interest in NETg for $36.0 million. At July 31, 2000, the Company had $205.0 million available under its $750.0 million revolving credit agreement, which expires in July 2002. The Company used this facility as well as proceeds from its equity offering to repay subordinated notes of $125 million that matured in March 2000.
The Company believes its cash on hand, cash generated from operations and its current and future debt capacity will be sufficient to fund its planned capital growth, operating and dividend requirements.
In June 2000, the Company announced that it has retained Goldman, Sachs & Co. to explore a range of strategic alternatives to enhance shareholder value, including the possible sale of the Company. There can be no assurance that a transaction will be consummated.
12
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Contingencies
In December 1993, the Company spun off its theatre operations to GC Companies, Inc. ("GCC"). Under the Reimbursement and Security Agreement between GCC and the Company, GCC granted to the Company a security interest in the stock of certain of its theatre subsidiaries to secure GCC's obligation to indemnify the Company from any losses which the Company may incur due to its secondary liability for theatre leases which were transferred to GCC as part of the spin-off. In addition, GCC agreed to certain financial covenants under the Reimbursement and Security Agreement. As of July 31, 2000, GCC's aggregate future rental payments due under theatre leases on which the Company is secondarily liable amounted to approximately $355 million.
The Company has waived certain financial covenants contained in the Reimbursement and Security Agreement and certain of GCC's other creditors have waived certain financial covenants contained in their agreements with GCC as of July 31, 2000. The Company believes that if GCC is unable to reach agreement with its creditors on acceptable amendments to such agreements, GCC will not be in compliance on October 31, 2000 with certain financial covenants contained in these agreements. There can be no assurance that GCC, the Company and GCC's creditors will be able to reach agreement on acceptable amendments to their existing agreements, or that GCC will be able to refinance any of its indebtedness or raise additional capital to repay any or all of such indebtedness.
In light of the foregoing, the Company anticipates that GCC may need to actively consider strategic alternatives, including a potential restructuring, recapitalization, bankruptcy reorganization or the sale of certain assets. The Company cannot predict the outcome of GCC's current financial situation, nor can the Company currently estimate its ultimate exposure under the theatre leases for which the Company is secondarily liable. Accordingly, no provision has been recorded in the financial statements. However, based on a number of factors, the Company believes that its ultimate liability will be significantly less than the aggregate future rental payments noted above. In the event GCC were subject to a bankruptcy reorganization, the Company believes the factors that could reduce its ultimate liability would include, but not be limited to, the following: the number of leases that would be rejected by GCC in a bankruptcy reorganization proceeding; the tax deductibility of the Company's payments pursuant to its liability for the leases; the Company's ability to mitigate its exposure under the leases for which it is liable; the Company's potential recovery of a portion of its liability for the leases from GCC; and the extended period of time over which the Company's liability for the lease obligations could be payable.
Forward-Looking Statements
Statements in this report referring to the expected future plans and performance of the Company are forward-looking statements. Actual future results may differ materially from such statements. Factors that could affect future performance in the Company's businesses include, but are not limited to: the Company's ability to develop and market its products and services; the relative success of the products and services offered by competitors; integration of acquired businesses; the seasonal and cyclical nature of the markets for the Company's products and services; changes in economic conditions; changes in public funding for the Company's educational products and services; and changes in purchasing patterns in the Company's markets.
13
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 1997 Incentive Plan, as amended.
10.2 1988 Stock Incentive Plan, as amended.
10.3(a-n) Termination Protection Agreements between the Company and
Richard A. Smith, Brian J. Knez, Robert A. Smith, John R. Cook,
Eric P. Geller, Kathleen A. Bursley, Peter Farwell, Paul F.
Gibbons, Gerald T. Hughes, Catherine N. Janowski, James P. Levy,
Gail S. Mann, Michael F. Panutich, and Paul J. Robershotte.
27.1 Financial data schedule
(b) Reports on Form 8-K.
On June 19, 2000, the Company filed a report on Form 8-K reporting
that the Company retained Goldman, Sachs & Co. to explore a range
of strategic alternatives to enhance shareholder value, including
the possible sale of the Company.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HHARCOURT GENERAL, INC.
Date: September 14, 2000
/s/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: September 14, 2000
/s/ Catherine N. Janowski
Catherine N. Janowski
Vice President and
Controller
15
EXHIBIT 10.1
HARCOURT GENERAL, INC.
(Formerly GENERAL CINEMA CORPORATION)
1988 STOCK INCENTIVE PLAN
1. Purposes of the Plan.
The purposes of the 1988 Stock Incentive Plan are to provide a means to attract and retain competent personnel and to provide to participating officers and other key employees long-term incentive for high levels of performance and for unusual efforts to improve the financial performance of the Company. These purposes may be achieved through the grant of options to purchase Common Stock of General Cinema Corporation, the grant of Stock Appreciation Rights, and the grant of other Stock-Based Awards, as described below.
2. Definitions.
(a) "Affiliate" means any corporation or other entity which is not a parent or subsidiary corporation (as defined in Section 425 of the Code) and (i) with respect to which the Company possesses a direct or indirect ownership interest in, and has the power to exercise management control over, such corporation or entity, or (ii) which possesses a direct or indirect ownership interest in, and has the power to exercise management control over, the Company.
(b) "Board" means the Board of Directors of General Cinema Corporation or the Executive Committee thereof.
(c) "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time.
(d) "Committee" means the Compensation Committee of the Board, or any other committee the Board may subsequently appoint to administer the Plan, as herein defined. The Committee shall be composed entirely of members of the Board who meet the requirements of Section 4(a) hereof.
(e) "Common Stock" means the common stock of the Company having a par value of $1.00 per share.
(f) "Company" means General Cinema Corporation, and any present or future parent or subsidiary corporations (as defined in Section 425 of the Code) or any successor to such corporations.
(g) "Employee" means any employee of the Company or its Affiliates.
(h) "Fair Market Value" means the closing price of Common Stock as quoted on the Composite Tape as published in The Wall Street Journal on the date as of which the fair market value is to be determined, or if there is no trading of Common Stock on such date, the closing price of Common Stock as quoted on such Composite Tape on the next preceding date on which there was trading in such shares.
(i) "Incentive Award" means a Stock Option, Stock Appreciation Right or Stock-Based Award granted under the Plan, as herein defined.
(j) "Incentive Stock Option" means a Stock Option that is intended to meet the requirements of Section 422A of the Code and regulations thereunder.
(k) "Non-Qualified Stock Option" means a Stock Option other than an Incentive Stock Option.
(l) "Participant" means any key Employee selected to receive an Incentive Award under the Plan.
(m) "Plan" means The General Cinema Corporation 1988 Stock Incentive Plan as set forth herein, as it may be amended from time to time.
(n) "Stock Appreciation Right" means the right to receive an amount up to the excess of the Fair Market Value of a share of Common Stock (as determined on the date of exercise), over (i) if the Stock Appreciation
Right is granted without relationship to a Stock Option, the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right was granted, or (ii) if the Stock Appreciation Right is related to a Stock Option, the purchase price of a share of Common Stock specified in the related Stock Option.
(o) "Stock-Based Award" means any award granted under Section 8.
(p) "Stock Option" means a right to purchase Common Stock.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 9 of the Plan, the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Incentive Awards under the Plan will not exceed 2,500,000 shares.
(b) The Common Stock to be delivered under the Plan will be made available, at the discretion of the Board or the Committee, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market.
(c) If any Incentive Award shall expire or terminate for any reason, without being exercised or paid, shares of Common Stock subject to such Incentive Award shall again be available for grant under subsequent Incentive Awards. Shares of Common Stock reserved for issuance upon payment of a Stock-Based Award when payment of the Stock-Based Award is made in cash shall be available for grant under subsequent Incentive Awards. Shares as to which a Stock Option has been surrendered in connection with the exercise of a related Stock Appreciation Right will not be available for grant under subsequent Incentive Awards.
(d) Subject to the general limitations contained in Sections 6, 7, 9 and 11, the Committee may make any adjustment in the exercise price, the number of shares subject to, or the terms of, a Non-Qualified Stock Option or Stock Appreciation Right by cancellation of an outstanding Non-Qualified Stock Option or Stock Appreciation Right and a subsequent regranting of a Non-Qualified Stock Option or Stock Appreciation Right, by amendment or by substitution of an outstanding Non-Qualified Stock Option or Stock Appreciation Right. Such amendment, substitution, or regrant may result in an exercise price that is higher or lower than the exercise price of the Non-Qualified Stock Option or Stock Appreciation Right, provide for a greater or lesser number of shares subject to the Non-Qualified Stock Option or Stock Appreciation Right, or provide for a longer or shorter term than the prior Non-Qualified Stock Option or Stock Appreciation Right; provided, however, that the Committee may not adversely affect the rights of any Participant to previously granted Incentive Awards without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment may be the date of the original grant.
4. Administration of the Plan.
(a) The Plan will be administered by the Committee, which will consist of three or more persons (i) who are not eligible to receive Incentive Awards under the Plan, and (ii) who have not been eligible within one year before appointment to the Committee, for selection as persons to whom Incentive Awards may be granted pursuant to the Plan, or to whom shares may be allocated or stock options, stock appreciation rights or other stock-based awards may be granted pursuant to any other plan of the Company entitling the participants to acquire stock, stock appreciation rights, stock options or stock-based rights in the Company.
(b) The Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. The Committee has authority in its discretion to determine the key Employees to whom and the time or times at which Incentive Awards may be granted or sold, to determine the number of shares of Common Stock, Stock Appreciation Rights or the number and type of Stock-Based Awards that make up each Incentive Award and to grant Incentive Awards. Each Incentive Award will be evidenced by a written instrument and may include any other terms and conditions consistent with the Plan, as the Committee may determine. The Committee also has authority to interpret the Plan, to determine the terms and provisions of the respective Incentive Award agreements and to make all other determinations necessary or advisable for Plan administration. The Committee has authority to prescribe, amend, and rescind rules and regulations relating to the Plan. All interpretations, determinations and actions by the Committee will be final, conclusive and binding upon all parties. Any action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members.
(c) No member of the Board or the Committee and no Employee will be liable for any action taken, or determination or omission made, in good faith by the Board, the Committee or any Employee with respect to the Plan or any Incentive Award granted under it.
5. Participation.
(a) The Committee shall from time to time designate those key Employees, if any, to be granted Incentive Awards under the Plan, the type of awards granted, the number of shares, options, rights or units, as the case may be, which shall be granted to each such Employee, and any other terms or conditions relating to the awards as it may deem appropriate, consistent with the provisions of the Plan. Participants may be designated at any time, and it shall not be necessary that all Participants be designated at the same meeting of the Committee. An individual who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards if the Committee so determines.
(b) No person will be eligible for the grant of any Incentive Stock Option who owns or would own immediately before the grant of such Stock Option, directly or indirectly, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company. This restriction does not apply if, at the time such Incentive Stock Option is granted, the Incentive Stock Option exercise price is at least 110% of the Fair Market Value on the date of grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five years from the date of grant.
(c) In no event may any member of the Board who is not an officer or other Employee be granted an Incentive Award under the Plan.
6. Terms and Conditions of Stock Options.
(a) Non-Qualified Stock Options may be granted to any key Employee selected by the Committee. Incentive Stock Options may be granted only to key Employees of the Company as selected by the Committee.
(b) The purchase price of Common Stock under each Stock Option will be determined by the Committee, but may not be less than the Fair Market Value on the date of grant .
(c) Stock Options may be exercised as determined by the Committee but in no event after ten years from the date of grant in the case of Incentive Stock Options, or after ten years and one day from the date of grant in the case of Non-Qualified Stock Options.
(d) Upon the exercise of a Stock Option, the purchase price will be payable in full in cash or its equivalent acceptable to the Company. To the extent provided by the Stock Option, the purchase price may be paid by the assignment and delivery to the Company of shares of Common Stock or Series A Stock or a combination of cash and such shares equal in value to the exercise price. Any shares so assigned and delivered to the Company in payment or partial payment of the purchase price will be valued at their Fair Market Value on the exercise date.
(e) Notwithstanding any other provision of the Plan, any Participant who disposes of shares of Common Stock acquired on the exercise of an Incentive Stock Option by sale or exchange either (i) within two years after the date of the grant of the Stock Option under which the stock was acquired or (ii) within one year after the transfer of such shares to him pursuant to exercise shall notify the Company of such disposition and of the amount realized and of his adjusted basis in such shares.
(f) The Fair Market Value (determined at the time the Incentive Stock Option is granted) of the shares of Common Stock with respect to which an Incentive Stock Option is exercisable for the first time by an Employee during any calendar year under this Plan or any other stock option plan of the Company will not exceed $100,000.
(g) No fractional shares will be issued pursuant to the exercise of a Stock Option; payment for the fractional shares will be made in cash.
(h) A Stock Option granted under this Plan shall, by its terms, be non-transferable by a Participant other than by will or the laws of descent and distribution, and shall be exercisable during the Participant's lifetime solely by the Participant or the Participant's duly appointed guardian or personal representative.
7. Terms and Conditions of Stock Appreciation Rights.
(a) A Stock Appreciation Right may be granted in connection with a Stock Option, either at the time of grant or at any time thereafter during the term of the Stock Option, or may be granted unrelated to a Stock Option.
(b) A Stock Appreciation Right related to a Stock Option shall require the holder, upon exercise, to surrender such Stock Option with respect to the number of shares as to which such Stock Appreciation Right is exercised, in order to receive payment of an amount computed pursuant to Section 7(e). Such Stock Option will, to the extent surrendered, then cease to be exercisable.
(c) In the case of Stock Appreciation Rights granted in relation to Stock Options, if the Stock Appreciation Right covers as many shares as the related Stock Option, the exercise of a related Stock Option shall cause the number of shares covered by the Stock Appreciation Right to be reduced by the number of shares with respect to which the related Stock Option is exercised. If the Stock Appreciation Right covers fewer shares than the related Stock Option, when a portion of the related Stock Option is exercised, the number of shares subject to the unexercised Stock Appreciation Right shall be reduced only to the extent necessary so that the number of remaining shares subject to the Stock Appreciation Right is not more than the remaining shares subject to the Stock Option.
(d) Subject to Section 7(k) and to such rules and restrictions as the Committee may, in its discretion and for any reason whatsoever, impose, a Stock Appreciation Right granted in connection with a Stock Option will be exercisable at such time or times, and only to the extent that a related Stock Option is exercisable, and will not be transferable except to the extent that such related Stock Option may be transferable.
(e) Upon the exercise of a Stock Appreciation Right related to a Stock Option, the holder will be entitled to receive payment of an amount determined by multiplying:
(i) The difference obtained by subtracting the purchase price of a share of Common Stock specified in
the related Stock Option from the Fair Market Value of a share of Common Stock on the date of
exerciseof such Stock Appreciation Right, by
(ii) The number of shares as to which such Stock Appreciation Right will have been exercised.
(f) A Stock Appreciation Right granted without relationship to a Stock Option will be exercisable as determined by the Committee but in no event after ten years from the date of grant.
(g) A Stock Appreciation Right granted without relationship to a Stock Option will entitle the holder, upon exercise of the Stock Appreciation Right, to receive payment of an amount determined by multiplying:
(i) The difference obtained by subtracting the Fair Market Value of a share of Common Stock on the date
the Stock Appreciation Right is granted from the Fair Market Value of a share of Common Stock on
the date of exercise of such Stock Appreciation Right, by
(ii) The number of shares as to which such Stock Appreciation Right will have been exercised.
(h) Notwithstanding subsections (e) and (g) above, the Committee may place a limitation on the amount payable upon exercise of a Stock Appreciation Right. Any such limitation must be determined as of the date of grant and noted on the instrument evidencing the Participant's Stock Appreciation Right granted hereunder.
(i) Payment of the amount determined under subsections (e) and (g) above may be made solely in whole shares of Common Stock valued at their Fair Market Value on the date of exercise of the Stock Appreciation Right or alternatively, in the sole discretion of the Committee, solely in cash or a combination of cash and shares as the Committee deems advisable. If the Committee decides to make full payment in shares of Common Stock, and the amount payable results in a fractional share, payment for the fractional share will be made in cash.
(j) A Stock Appreciation Right granted under this Plan shall, by its terms, be non-transferable by a Participant other than by will or the laws of descent and distribution and shall be exercisable during the Participant's lifetime solely by the Participant or the Participant's duly appointed guardian or personal representative.
(k) So long as required by the federal securities laws, no Stock Appreciation Right granted to an Employee subject to Section 16 of the Securities Exchange Act of 1934, as amended, may be exercised before six months after the date of grant except in the event death or disability of such employee occurs before the expiration of the six-month period; any exercise of a Stock Appreciation Right for cash will be made only during the period beginning on the third business day following the date of release for publication of the Company's regular quarterly or annual summary statement of revenues and income (assuming such financial data appears on a wire service, in a financial news service, or in a newspaper of general circulation, or is otherwise made publicly available) and ending on the twelfth business day following such date.
(l) The Committee may impose such additional conditions or limitations on the exercise of a Stock Appreciation Right as it may deem necessary or desirable to secure for holders of Stock Appreciation Rights the benefits of Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, or any successor provision in effect at the time of grant or exercise of a Stock Appreciation Right or as it may otherwise deem advisable.
(m) The Committee may, in its discretion, defer payment with respect to an exercise of a Stock Appreciation Right to some later time, but in no event later than 12 months after the exercise of the Stock Appreciation Right; provided, however, the Committee may not defer payment with respect to a Stock Appreciation Right which is related to an Incentive Stock Option.
8. Stock-Based Awards
The Committee may grant awards of shares, share units, or cash payments valued with reference to the Fair Market Value of Common Stock, including (without limitation) restricted shares, restricted share units, performance shares, performance share units, and tax-offset payments. Subject to the provisions of the Plan, the Committee shall have complete discretion to determine the terms and conditions applicable to such awards. Such terms and conditions may require, among other things, continued employment and/or attainment of specified performance objectives. The Committee shall determine whether awards granted under this Section 8 shall be settled in cash, Common Stock or a combination of cash and Common Stock.
9. Adjustment Provisions.
(a) If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock, or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares provided in Section 3, (ii) the number and kind of shares or other securities subject to the then-outstanding Incentive Awards, and (iii) the price for each share or other unit of any other securities subject to then-outstanding Incentive Awards without change in the aggregate purchase price or value as to which such Incentive Awards remain exercisable or subject to restrictions.
(b) Adjustments under paragraph (a) will be made by the Committee, whose determination as to what adjustments will be made and the extent thereof will be made and the extent thereof will be final, binding, and conclusive. No fractional interest will be issued under the Plan on account of any such adjustments.
(c) Notwithstanding anything to the contrary in this Plan, upon any Change of Control, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any Incentive Award shall be automatically accelerated or waived so that the Incentive Award may be immediately exercised or realized in full.
A Change of Control means the occurrence of any of the following:
(i) any "person" or "group" (as described in the Securities Exchange Act of 1934, as amended) becomes or
is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting
securities with respect to the election of the Board (counting each share of Class B Stock, par value $1.00
per share, of the Company (the "Class B Stock") as having ten votes per share), and also holds more of
such combined voting power than any group or person who is the beneficial owner, on June 16, 2000, of
over 20% of the combined voting power of the then outstanding voting securities with respect to the
election of the Board. "Person" does not include any Company employee benefit plan, any company the
shares of which are held by the Company shareholders in substantially the same proportion as such
shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or
any testamentary trust or estate;
(ii) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction
involving the Company, other than, in the case of any of the foregoing, a transaction in which the
Company shareholders immediately prior to the transaction hold immediately thereafter, in the same
proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of
the then outstanding voting securities with respect to the election of the board of directors of the resulting
entity (it being understood that if the Class B Stock shall remain outstanding following such transaction,
each share of Class B Stock shall be counted as having ten votes per share for purposes of such
calculation);
(iii) any change in a majority of the Board within a 24-month period unless the change was approved by a
majority of the Incumbent Directors. "Incumbent Director" means a member of the Board at the beginning
of the period in question, including any director who was not a member of the Board at the beginning of
such period but was elected or nominated to the Board by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such
director was not nominated by a person who has expressed an intent to effect a Change of Control or
engage in a proxy or other control contest);
(iv) any liquidation or sale of all or substantially all of the assets of the Company; or
(v) any other transaction so denominated by the Board.
10. General Provisions.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Participant any right to continue in the employ of the Company or its Affiliates or affect the right of the Company or its Affiliates to terminate the employment of any Participant at any time for any reason.
(b) No shares of Common Stock will be issued or transferred pursuant to an Incentive Award unless and until all then-applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction and by any stock exchanges upon which the Common Stock may be listed, have been fully met. As a condition precedent to the issuance of shares pursuant to the grant or exercise of an Incentive Award, the Company may require the Participant to take any reasonable action to meet such requirements.
(c) No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Incentive Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant, beneficiary or other person.
(d) The Company may make such provisions as it deems appropriate to withhold any taxes the Company determines it is required to withhold in connection with any Incentive Award. The Company may require the Participants to satisfy any relevant tax requirements before authorizing any issuance of Common Stock to the Participant.
The Committee may provide that, if and to the extent withholding of any federal, state or local tax is required in connection with the exercise of an option, the optionee may elect, at such time and in such manner as the Committee shall prescribe, to have the Company hold back from the shares to be delivered stock having a value calculated to satisfy such withholding obligation. Notwithstanding the foregoing, in the case of an optionee subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, no such election shall be effective unless made in compliance with any applicable requirements of Rule 16b-3(e) or any successor Rule under such Act.
(e) No Incentive Award and no right under the Plan, contingent or otherwise, will be assignable or subject to any encumbrance, pledge or charge of any nature except that, under such rules and regulations as the Company may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to an Incentive Award in the event of death of a Participant. If such beneficiary is the executor or administrator of the estate of the Participant, any rights with respect to such incentive Award may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Incentive Award.
(f) The Committee shall have sole discretion to determine the time or times and conditions under which Stock Options or Stock Appreciation Rights may be exercised and, as provided in Section 8, the terms and conditions of Stock-Based Awards and the extent to which Participants or their beneficiaries may exercise Stock Appreciation Rights and receive payment with respect to, or otherwise obtain the benefits of Stock-Based Awards upon any particular Participant's retirement, death or other termination of the Participant's employment with the Company or its Affiliates. The provisions applicable to the Stock Options, Stock Appreciation Rights and/or Stock-Based Awards of a particular Participant upon the Participant's termination of employment with the Company or its Affiliates will be set forth in each agreement under which an Incentive Award is made.
(g) (i) If the Committee in its sole discretion determines that as a matter of law such procedure is or may be
desirable, it may require the Participant, on any exercise or payment of an Incentive Award, or any portion
thereof, and as a condition to the Company's obligation to deliver to the Participant certificates
representing shares of Common Stock, to execute and deliver to the Company a written statement, in form
satisfactory to the Company, representing and warranting that his purchase or receipt of shares of Common
Stock, is for his own account for investment and not with a view to resale or distribution thereof and that
any subsequent sale or offer for sale of any of such shares shall be made pursuant to either (A) a
Registration Statement on an appropriate form under the Securities Act of 1933, as amended, which has
become effective and is current with respect to the shares being offered and sold or (B) a specific
exemption from the registration requirements of the Securities Act, but in claiming such exemption the
Participant shall, before any sale or offer for sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Company as to the availability of such exemption.
(ii) The Company may endorse an appropriate legend referring to the foregoing restrictions or other
restrictions which may be applied under the Plan on the certificate or certificates representing any shares
of Common Stock issued or transferred to a Participant under any Incentive Award granted under the Plan.
(h) If at any time the Board shall determine in its discretion that the listing, registration or qualification of the shares of Common Stock covered by the Plan on any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to or in connection with the sale or transfer of shares of Common Stock under the Plan, no shares will be delivered unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained or otherwise provided for, free of any conditions not acceptable to the Board.
11. Amendment and Termination of Plan; Amendment of Incentive Awards.
(a) The Board will have the power, in its discretion, to amend, suspend or terminate the Plan at any time. No such amendment will, without approval of the shareholders of the Company:
(i) Change the class of person eligible to receive Incentive Awards under the Plan;
(ii) Materially increase the benefits accruing to Participants under the Plan;
(iii) Increase the number of shares of Common Stock subject to the Plan; or
(iv) Transfer the administration of the Plan to any person who is not a "disinterested administrator" under Rule 16b.
(b) Except as otherwise provided by Section 3(d) and Section 9, the Committee may not, without the consent of a Participant, make modifications in the terms and conditions of an Incentive Award which may adversely affect the Participant's Incentive Award.
(c) No amendment, suspension or termination of the Plan will, without the consent of the Participant, alter, terminate, impair or adversely affect any right or obligation under any Incentive Award previously granted under the Plan.
(d) The Committee may refrain from designating any Participants or may refrain from making any Incentive Awards, but such action shall not be deemed a termination of the Plan. No employee shall have any claim or right to be granted Incentive Awards under the Plan.
12. Effective Date of Plan Duration of Plan.
The Plan will become effective upon adoption by the Board, subject to approval by the shareholders of General Cinema Corporation. The Plan will terminate, unless sooner terminated under Section 11, on December 17, 1997, being the day before the tenth anniversary of the day on which the Plan was adopted by the Board.
EXHIBIT 10.2
HARCOURT GENERAL, INC.
1997 INCENTIVE PLAN
1. DEFINED TERMS
Appendix A, which is incorporated by reference, defines the terms used in the Plan.
2. IN GENERAL
The Plan has been established to advance the interests of the Company by giving selected Employees, directors and other persons (including both individuals and entities) who provide services to the Company or its Affiliates equity-based or cash
incentives through the grant of Awards. No Award may be granted under the Plan after December 31, 2006, but Awards previously granted may extend beyond that date.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and
conditions of any Award; prescribe forms, rules and procedures (which it may modify or waive); and otherwise do all things necessary to carry out the purposes of the Plan. Once an Award has been communicated in writing to a Participant, the Administrator
may not, without the Participant's consent, alter the terms of the Award so as to affect adversely the Participant's rights under the Award, unless the Administrator expressly reserved the right to do so. In the case of any Award intended to be eligible
for the performance-based compensation exception under Section 162(m)(4)(C) of the Code, the Committee shall exercise its discretion consistent with qualifying the Award for such exception.
4. SHARES SUBJECT TO THE PLAN
A. A total of 4,000,000 shares of Stock have been reserved for issuance under the Plan. The following shares of Stock will also be available for future grants:
(i) shares remaining under an Award that terminates without having been exercised in full (in the case of an Award requiring exercise by a Participant for delivery of Stock);
(ii) shares subject to an Award, where cash is delivered to a Participant in lieu of such shares;
(iii) shares of Restricted Stock that are forfeited to the Company;
(iv) shares of Stock tendered by a Participant as payment upon exercise of an Award; and
(v) shares of Stock held back by the Administrator, or tendered by a Participant, in satisfaction of tax withholding requirements.
Stock delivered under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan.
B. The maximum number of shares for which Stock Options may be granted to any person over the life of the Plan shall be 1,500,000. The maximum number of shares subject to SARs granted to any person over the life of the Plan shall likewise be 1,500,000. For purposes of the preceding two sentences, the repricing of a Stock Option or SAR shall be treated as a new grant to the extent required under Section 162(m) of the Code. The aggregate maximum number of shares of Stock delivered to any person over the life of the Plan pursuant to Awards that are not Stock Options or SARs shall also be 1,500,000. Subject to these limitations, each person eligible to participate in the Plan shall be eligible in any year to receive Awards covering up to the full number of shares then available for Awards under the Plan.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees, directors and other individuals or entities providing services to the Company or its Affiliates who, in the opinion of the
Administrator, are in a position to
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make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is further limited to those individuals whose employment status would qualify them for the tax treatment described in Sections 421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
A. ALL AWARDS
(1) PERFORMANCE OBJECTIVES. Where rights under an Award depend in whole or in part on attainment of performance objectives, actions by the Company that have an effect, however material, on such
performance objectives or on the likelihood that they will be achieved will not be deemed an amendment or alteration of the Award unless accomplished by a change in the express terms of the Award or other action that is without substantial consequence
except as it affects the Award
(2) ALTERNATIVE SETTLEMENT. The Company retains the right at any time to extinguish rights under an Award in exchange for payment in cash, Stock (subject to the limitations of Section 4) or other
property on such terms as the Administrator determines, provided the holder of the Award consents to such exchange.
(3) TRANSFERABILITY OF AWARDS. Except as the Administrator otherwise expressly provides, Awards (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may not be
transferred other than by will or by the laws of descent and distribution and, during a Participant's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons
legally appointed to act on the Participant's behalf).
(4) VESTING, ETC. The Administrator may determine the time or times at which an Award will vest (i.e., become free of restrictions) or become exercisable. Unless the Administrator expressly provides
otherwise, an Award requiring exercise will cease to be exercisable, and all other Awards to the extent not already fully vested will be forfeited, immediately upon the cessation (for any reason, including death) of the Participant's employment or other
service relationship with the Company and its Affiliates.
(5) TAXES. The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares from an Award or permit a Participant to tender previously owned shares in satisfaction of tax withholding requirements.
(6) DIVIDEND EQUIVALENTS, ETC. The Administrator may provide for the payment of amounts in lieu of dividends or other distributions with respect to Stock subject to an Award.
(7) RIGHTS LIMITED. Nothing in the Plan shall be construed as giving any person the right to continued employment or service with the Company or its Affiliates, nor any rights as a shareholder
except as to shares actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of employment or service for any reason, even if the termination is in violation
of an obligation of the Company or Affiliate to the Participant.
(8) SECTION 162(M). In the case of an Award intended to be eligible for the performance-based compensation exception under Section 162(m)(4)(C) of the Code, the Plan and such Award shall be
construed in a manner consistent with qualifying the Award for such exception.
B. AWARDS REQUIRING EXERCISE
(1) TIME AND MANNER OF EXERCISE. Unless the Administrator expressly provides otherwise, (a) an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a written notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award; and (b) if the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the
right to do so.
(2) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment either at or after the time of
the Award, subject to the following: (a) unless the Administrator expressly provides otherwise, all
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payments will be by cash or check acceptable to the Administrator; and (b) where shares issued under an Award are part of an original issue of shares, the Award shall require an exercise price equal to at least the par value of such shares.
(3) RELOAD AWARDS. The Administrator may provide that upon the exercise of an Award through the tender of previously owned shares of Stock, the Participant or other person exercising the Award will
automatically receive a new Award of like kind covering a number of shares determined by reference to the number of shares tendered in payment of the exercise price of the first Award.
C. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return for either (i) services determined by the Administrator to have a value not less than the par value of the awarded shares, or (ii) cash or other
property having a value not less than the par value of the awarded shares plus such additional amounts (if any) as the Administrator may determine payable in such combination of cash, other property (of any kind) or services as the Administrator may
determine.
7. EFFECT OF CERTAIN TRANSACTIONS
A. MERGERS, ETC.
In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or
entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company's assets or a dissolution or liquidation of the Company (a "covered transaction"), all outstanding Awards requiring
exercise will cease to be exercisable, and all other Awards to the extent not fully vested (including Awards subject to performance conditions not yet satisfied or determined) will be forfeited, as of the effective time of the covered transaction. Prior
to such time the Administrator may (but need not) accelerate the vesting or exercisability of any Award or provide for substitute or replacement awards from the acquiring entity (if any).
B. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) BASIC ANTIDILUTION PROVISIONS. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capital structure, the Administrator will
make appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4.a. and to the maximum share limits described in Section 4.b., and will also make appropriate adjustments to the number and kind of shares of
stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to common stockholders other than stock
dividends or normal cash dividends, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the
Plan and to preserve the value of Awards made hereunder; provided, that no such adjustment shall be made to the maximum share limits described in Section 4.b., or otherwise to an Award intended to be eligible for the performance-based exception under
Section 162(m)(4)(C) of the Code, except to the extent consistent with that exception.
C. CHANGE OF CONTROL
Notwithstanding anything to the contrary in this Plan and unless specifically provided otherwise in an Award agreement, upon any Change of Control, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any Award shall be automatically accelerated or waived so that the Award may be immediately exercised or realized in full.
A Change of Control means the occurrence of any of the following:
(i) any "person" or "group" (as described in the Securities Exchange Act of 1934, as amended) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock, par value $1.00 per share, of the Company (the "Class B Stock") as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on June 16, 2000, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(ii) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(iii) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest);
(iv) any liquidation or sale of all or substantially all of the assets of the Company; or
(iv) any other transaction so denominated by the Board."
8. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares previously delivered under the Plan until: the Company's counsel has approved all
legal matters in connection with the issuance and delivery of such shares; if the outstanding Stock is at the time listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such
exchange or system upon official notice of notice of issuance; and all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the Award, such
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representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on
transfer applicable to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, or may at any time terminate
the Plan as to any further grants of Awards, provided that (except to the extent expressly required or permitted by the Plan) no such amendment will, without the approval of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section 422 of the Code or for Awards to be eligible for the performance-based exception under Section 162(m)(4)(C) of the Code.
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way affect the Company's right to award a person bonuses or other compensation in addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts.
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APPENDIX A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and be subject to the provisions set forth below:
"ADMINISTRATOR": The Committee, if one has been appointed; otherwise the Board.
"AFFILIATE": Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or
indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests.
"AWARD": Any of the following:
(i) Options ("Stock Options") entitling the recipient to acquire shares of Stock upon payment of the exercise price. Each Stock Option (except as otherwise expressly provided by the Committee consistent with continued qualification of the Stock Option as a performance-based award for purposes of Section 162(m) of the Code, or unless the Committee expressly determines that such Stock Option is not subject to Section 162(m) of the Code or that the Stock Option is not intended to qualify for the performance-based exception under Section 162(m) of the Code) will have an exercise price not less than the fair market value of the Stock subject to the option, determined as of the date of grant, except that an ISO granted to an Employee described in Section 422(b)(6) of the Code will have an exercise price not less than 110% of such fair market value. The Administrator will determine the medium in which the exercise price is to be paid, the duration of the option, the time or times at which an option will become exercisable, provisions for continuation (if any) of option rights following termination of the Participant's employment with the Company and its Affiliates, and all other terms of the Option. No Stock Option awarded under the Plan will be an ISO unless the Administrator expressly provides for ISO treatment.
(ii) Rights ("SARs") entitling the holder upon exercise to receive cash or Stock, as the Administrator determines, equal to a function (determined by the Administrator using such factors as it deems appropriate) of the amount by which the Stock has appreciated in value since the date of the Award.
(iii) Stock subject to restrictions ("Restricted Stock") under the Plan requiring that the Stock be redelivered to the Company if specified conditions are not satisfied. The conditions to be satisfied in connection with any Award of Restricted Stock, the terms on which such Stock must be redelivered to the Company, the purchase price of such Stock, and all other terms shall be determined by the Administrator.
(iv) Stock not subject to any restrictions under the Plan ("Unrestricted Stock").
(v) A promise to deliver Stock or other securities in the future on such terms and conditions as the Administrator determines.
(vi) Securities (other than Stock Options) that are convertible into or exchangeable for Stock on such terms and conditions as the Administrator determines.
(vii) Cash bonuses tied to performance criteria as described at (viii) below ("Cash Performance Awards").
(viii) Awards described in any of (i) through (vii) above where the right to exercisability, vesting or full enjoyment of the Award is conditioned in whole or in part on the satisfaction of specified performance criteria ("Performance Awards"). The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m)(4)(C) of the Code and Performance Awards that are not intended so to qualify. No more than $3,500,000 may be paid to any individual with respect to any Cash Performance Award. In applying the limitation of the
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preceding sentence: (A) multiple Cash Performance Awards to the same individual that are determined by reference to performance periods of one year or less ending with or within the same fiscal year of the Company shall be subject in the aggregate to one $3,500,000 limit, and (B) multiple Cash Performance Awards to the same individual that are determined by reference to one or more multi-year performance periods ending in the same fiscal year of the Company shall be subject in the aggregate to a separate limit of $3,500,000. With respect to any Performance Award other than a Cash Performance Award, Stock Option or SAR, the maximum award opportunity shall be 1,500,000 shares or their equivalent value in cash, subject to the limitations of Section 4.b. For the avoidance of doubt, any Performance Award of a type described in (i) through (vi) above shall be treated for purposes of this paragraph as a Performance Award that is not a Cash Performance Award, even if payment is made in cash.
In the case of a Performance Award intended to qualify as performance-based for the purposes of Section 162(m) of the Code, the Committee shall in writing preestablish a specific performance goal (based solely on one or more qualified performance criteria) no later than 90 days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the award as performance-based under Code Section 162(m)(4)(C)). For purposes of the Plan, a qualified performance criterion is any of the following: (1) earnings or earnings per share (whether on a pre-tax, after-tax, operational or other basis), (2) return on equity, (3) return on assets, (4) revenues, (5) sales, (6) expenses, (7) one or more operating ratios, (8) stock price, (9) stockholder return, (10) market share, (11) cash flow, (12) inventory levels or inventory turn, (13) capital expenditures, (14) net borrowing, debt leverage levels or credit quality, (15) the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions or (16) any combination of the foregoing. The performance goals selected in any case need not be applicable across the Company, but may be particular to an individual's function or business unit. Prior to payment of any Performance Award intended to qualify as performance-based under Section 162(m)(4)(C) of the Code, the Committee shall certify whether the performance goal has been attained and such determination shall be final and conclusive. If the performance goal is not attained, no other Award shall be provided in substitution of the Performance Award.
(ix) Grants of cash, or loans, made in connection with other Awards in order to help defray in whole or in part the economic cost (including tax cost) of the Award to the Participant. The terms of any such grant or loan shall be determined by the Administrator. Awards may be combined in the Administrator's discretion.
"BOARD": The Board of Directors of the Company.
"CODE": The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect.
"COMMITTEE": A committee of the Board comprised solely of two or more outside directors within the meaning of Section 162(m) of the Code. The Committee may delegate ministerial tasks to such persons (including
Employees) as it deems appropriate.
"COMPANY": Harcourt General, Inc.
"EMPLOYEE": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
"PARTICIPANT": An Employee, director or other person providing services to the Company or its Affiliates who is granted an Award under the Plan.
"PLAN": Harcourt General, Inc. 1997 Incentive Plan as from time to time amended and in effect.
"STOCK": Common Stock of the Company, par value $1.00 per share.
EXHIBIT 10.3n
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 19, 2000 between Harcourt General, Inc. Robert A. Smith (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 4.55% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Robert A. Smith
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 70% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3a
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 21, 2000 between Harcourt General, Inc. and Kathleen Bursley (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 21, 2000 (the Effective Date") and shall remain in effect until June 20, 2002 ("the Term"); provided, however, that commencing with June 21, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 2.73% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be
entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 21st day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Kathleen Bursley
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held); or
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice.
Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII ."Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive's age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3b
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 28, 2000 between Harcourt General, Inc. and John R. Cook (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 28, 2000 (the "Effective Date") and shall remain in effect until June 27, 2002 (the "Term"); provided, however, that commencing with June 28, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that, following such period (but in no event after Executive has reached 65), the Company shall continue to provide Executive and Executive's spouse and dependents, medical and life insurance coverage (excluding Executive Medical) comparable to the Company's medical and life insurance coverage provided to Executive and at the same cost to Executive as during the period of years following the Termination Date; provided, further, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B.
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 8.18% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 28th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ John R. Cook
EXECUTIVE
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 50% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive's age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 19, 2000 between Harcourt General, Inc. and Peter Farwell (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 4.55% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Peter Farwell
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive's age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3d
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 19, 2000 between Harcourt General, Inc. and Eric P. Geller (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
ii. In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool
In the event of a Change of Control, Executive shall be entitled to a 8.18% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Eric P. Geller
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 50% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3e
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 29, 2000 between Harcourt General, Inc. and Paul F. Gibbons (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 29, 2000 (the "Effective Date") and shall remain in effect until June 28, 2002 (the "Term"); provided, however, that commencing with June 29, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 7.27% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 29th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Paul F. Gibbons
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) 0any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 19, 2000 between Harcourt General, Inc. and Gerald T. Hughes (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B.
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) .In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 5.45% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Gerald T. Hughes
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3g
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 30, 2000 between Harcourt General, Inc. and Catherine N. Janowski (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 30, 2000 (the "Effective Date") and shall remain in effect until June 29, 2002 (the "Term"); provided, however, that commencing with June 30, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 4.09% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be
entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 30th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Catherine N. Janowski
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means the lesser of (i) the quotient of (A) 24 months plus one month for each full year of service with the Company or any of its Subsidiaries divided by (B) twelve and (ii) three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3h
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 19, 2000 between Harcourt General, Inc. and Brian J. Knez (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 19, 2000 (the "Effective Date") and shall remain in effect until June 18, 2002 (the "Term"); provided, however, that commencing with June 19, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 4.55% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 19th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Brian J. Knez
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 70% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3i
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 22, 2000 between Harcourt General, Inc. and James Levy (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 22, 2000 (the "Effective Date") and shall remain in effect until June 21, 2002 (the "Term"); provided, however, that commencing with June 22, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that, following such period (but in no event after Executive has reached 65), the Company shall continue to provide Executive and Executive's spouse and dependents, medical and life insurance coverage (excluding Executive Medical) comparable to the Company's medical and life insurance coverage provided to Executive and at the same cost to Executive as during the period of years following the Termination Date; provided, further, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B.
e. Retiree Medical. Following Executive's entitlement to continued activeemployee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 7.27% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 22nd day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ James Levy
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held); or
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice.
Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 50% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive's age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
__________________________________
Date Signed
EXHIBIT 10.3j
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 20, 2000 between Harcourt General, Inc. and Gail S. Mann (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 20, 2000 (the "Effective Date") and shall remain in effect until June 19, 2002 (the "Term"); provided, however, that commencing with June 20, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool
In the event of a Change of Control, Executive shall be entitled to a 1.82% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 20th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Gail S. Mann
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means the lesser of (i) the quotient of (A) 24 months plus one month for each full year of service with the Company or any of its Subsidiaries divided by (B) twelve and (ii) three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3k
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 23, 2000 between Harcourt General, Inc. and Michael F. Panutich (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 23, 2000 (the "Effective Date") and shall remain in effect until June 22, 2002 (the "Term"); provided, however, that commencing with June 23, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 4.09% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 23rd day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Michael F. Panutich
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 35% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3l
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 28, 2000 between Harcourt General, Inc. and Paul J. Robershotte (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 28, 2000 (the "Effective Date") and shall remain in effect until June 27, 2002 (the "Term"); provided, however, that commencing with June 28, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. (i) For purposes of eligibility for retirement, for early commencement or actuarial subsidies and for purposes of benefit accruals under any Company defined benefit pension plan (or any such alternative contractual arrangement that the Executive may have with the Company or any of its Subsidiaries), (i) Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date, (ii) Executive will become fully vested in any defined benefit pension benefits provided by the Company and (iii) for purposes of calculating Executive's benefit, compensation shall include both Base Salary and Bonus; provided, that, (A) Base Salary applicable to any period of service deemed to occur after the Termination Date will be increased by five percent for each year of such additional service and (B) Executive's Bonus for each such year of additional service shall be based on the Target Bonus percentage; provided, further, that if any benefits afforded by this Agreement, including the benefits arising from the grant of additional service and age, are not provided under the qualified pension plan of the Company, the benefit, or its equivalent in value, shall be provided under a nonqualified pension plan of the Company or the general assets of the Company. Except for benefits payable under the qualified defined benefit pension plan of the Company (which shall be governed by the terms of such plan), the benefits payable under this Section 3(d) shall be paid to Executive by the Company and shall be determined pursuant to the terms of the Harcourt General Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the "SERP"), after giving effect to the provisions of this Section 3(d); provided that Executive may, if Executive obtains the consent of the Company, receive the benefits payable under this Section 3(d) in a lump sum or otherwise, within the Payment Period using the methodology set forth in Schedule B
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool.
In the event of a Change of Control, Executive shall be entitled to a 2.73% interest in the Equity Pool (an "Equity Share"). Subject to Executive's continued employment with the Company or any of its Subsidiaries, the Equity Share shall be payable in a lump sum cash payment on the date which is six months following the Change of Control (the "Payment Date"); provided, however, that if (i)(A) Executive is terminated by the Company and its Subsidiaries without Cause, (B) Executive's employment terminates due to Executive's death or Permanent Disability or (C) Executive resigns with Good Reason following the Change of Control but prior to the Payment Date or (ii) Executive is terminated prior to the Change in Control, under the circumstances described in Section 3, Executive shall be entitled to the payment of the Equity Share within fifteen business days after (x) such termination of employment or (y) if later, the date of the Change of Control. The Equity Shares shall not be considered compensation under any qualified or nonqualified pension, welfare or deferred compensation plan of the Company.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 28th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Richard A. Smith
By: Richard A. Smith
Title: Chairman of the Board
/s/ Paul J. Robershotte
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means the lesser of (i) the quotient of (A) 24 months plus one month for each full year of service with the Company or any of its Subsidiaries divided by (B) twelve and (ii) three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 50% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed
EXHIBIT 10.3m
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective June 28, 2000 between Harcourt General, Inc. and Richard A. Smith (the "Executive").
Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive's ability to perform Executive's responsibilities and utilize Executive's talents for the benefit of the Company, and the Company's ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:
1. Defined Terms.
Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.
2. Effective Date; Term.
This Agreement shall be effective as of June 28, 2000 (the "Effective Date") and shall remain in effect until June 27, 2002 (the "Term"); provided, however, that commencing with June 28, 2001 and on each anniversary thereof (each an "Extension Date"), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.
3. Change of Control Benefits.
(i) If Executive's employment with the Company and its Subsidiaries is terminated at any time within the two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive's execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the "Release"), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive's employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of a Change of Control, Executive shall be entitled to the benefits provided hereafter in Sections 3 and 4 and as otherwise set forth in this Agreement, but only if an anticipated Change of Control actually occurs, and Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control. Notwithstanding the preceding sentence, in the event of any such termination, Executive shall continue to receive Executive's Base Salary at the annual rate in effect immediately prior to such termination (but not less than the annual rate in effect on the date of this Agreement) and any Bonus to which Executive would have been entitled had Executive remained employed until the date of the anticipated Change of Control, provided, however that such Base Salary and Bonus continuation shall end on the date of the anticipated Change of Control or the date that the agreement or other circumstance that would have resulted in the anticipated Change of Control terminates, whichever is applicable.
Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.
a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the "Payment Period"), the Company shall pay Executive a cash lump sum equal to:
(1) the Severance Multiple times the greater of Executive's Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and
(2) the Severance Multiple times the Target Bonus; and
(3) Executive's Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive's termination occurs and the denominator of which shall equal 365.
b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall provide Executive and Executive's spouse and dependents (each as defined under the applicable program) with medical (including Executive Medical), dental, accidental death and dismemberment, life insurance and long-term disability coverages at the same benefit level, duration and at the same cost to Executive as provided to Executive immediately prior to the Change of Control; provided, however, that if Executive becomes employed by a new employer, (i) continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled and (ii) long-term disability benefits provided by the new employer shall offset long-term disability benefits provided by the Company. In addition, the period in which Executive is entitled to continued coverage under COBRA shall commence on the Termination Date.
c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, all compensation previously deferred by Executive but not yet paid as well as the Company's matching contribution with respect to such deferred compensation and all accrued interest thereon; provided that if Executive is eligible for retirement under the terms of the applicable deferred compensation plan Executive shall receive the deferred compensation and interest pursuant to Executive's election under such plan unless Executive obtains the consent of the Company to receive the deferred compensation and interest in a lump sum or otherwise. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other compensation (including any stock options or other equity-related payments) and benefits, if any, to which Executive may be entitled from time to time pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (c), the "Accrued Benefits").
d. Retirement Benefits. No applicable.
e. Retiree Medical. Following Executive's entitlement to continued active employee benefits pursuant to Section 3(b), if Executive is eligible for retiree medical benefits, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to pay, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control; provided, that for all purposes under this Section 3(e), Executive will be credited with an additional number of years of service and age equal to the Severance Multiple beyond that eligible to be taken into account under the retiree medical plan as of the Termination Date.
f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for (A) professional outplacement services by qualified consultants selected by Executive (but only until the date Executive first obtains full-time employment after the Termination Date) (not to exceed $25,000), and (B) subject to the terms and conditions in effect immediately prior to the Change of Control, tax preparation fees, estate planning and financial counseling (not to exceed 3% in total of the sum of the amounts payable pursuant to Section 3(a)(1) and 3(a)(2)).
(ii) In the event of a Change of Control during a three-year Performance Period under the Harcourt, Inc. Performance Long-Term Cash Incentive Plan (the "Long-Term Incentive Plan"), Executives who were participants in the Long-Term Incentive Plan shall be entitled to, and the Company shall be required to pay, within the Payment Period, a lump sum cash payment equal to Executive's Equity Share (as defined in the Long-Term Incentive Plan) of a portion of the Incentive Pool (as defined in the Long-Term Incentive Plan) for each such Performance Period equal to the total Incentive Pool for the applicable three-year Performance Period multiplied by a fraction, the numerator of which shall equal the number of days that have elapsed in the Performance Period and the denominator of which shall equal 1,095. The Incentive Pool shall be calculated based on the assumption that all target performance goals were attained through the Change of Control.
4. Equity Pool. Not Applicable.
5. Mitigation.
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.
6. Gross-Up.
a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the "Excise Tax"), Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the "Safe Harbor Amount"), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.
b. All determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive's residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive's behalf) when due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due ("Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
c. 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 any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, 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; 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 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 6(c), 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, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold 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; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. 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 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.
d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 6, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify 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 the Gross-Up Payment required to be paid.
7. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive's employment for Cause. If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.
8. Indemnification; Director's and Officer's Liability Insurance.
(i) Executive shall retain all rights to indemnification under the Company's Certificate of Incorporation or By-Laws, and (ii) the Company shall maintain Director's and Officer's liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.
9. Arbitration.
All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Boston, Massachusetts, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within 30 days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.
10. Costs of Proceedings.
The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 10.
11. Assignment.
Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.
12. Withholding.
Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof.
14. Notice.
For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.
If to the Company: Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
15. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the effect of a Change of Control on the relationship between the Company and the other members of the Company and Executive. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive's compensation or other benefits or terminate Executive's employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.
16. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 28th day of June, 2000.
HARCOURT GENERAL, INC.
/s/ Eric P. Geller
By: Eric P. Geller
Title: Senior Vice President
/s/ Richard A. Smith
EXECUTIVE
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:
I. "Act" means the Securities Exchange Act of 1934, as amended.
II. "Base Salary" means Executive's annual rate of base salary in effect on the date in question.
III. "Board" means the board of directors of the Company.
IV. "Bonus" means the amount payable to Executive under the Company's applicable annual incentive bonus plan with respect to a fiscal year of the Company.
V. "Cause" means either of the following:
(1) If Executive has an employment agreement, the definition contained therein; otherwise
(2) (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive's willful malfeasance or willful misconduct in connection with Executive's duties hereunder, or Executive's repeated willful refusal to perform Executive's duties after written notice to Executive and a reasonable opportunity to cure (not including any duties in excess of Executive's duties immediately prior to the Change of Control) which, in each case, results in demonstrable harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates.
VI. "Change of Control" means the first to occur of any of the following:
(1) any "person" or "group" (as described in the Act) becomes or is the beneficial owner of 25% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Board (counting each share of Class B Stock as having ten votes per share), and also holds more of such combined voting power than any group or person who is the beneficial owner, on the Effective Date, of over 20% of the combined voting power of the then outstanding voting securities with respect to the election of the Board. "Person" does not include any Company employee benefit plan, any company the shares of which are held by the Company shareholders in substantially the same proportion as such shareholders held the stock of the Company immediately prior to acquiring the shares of such company, or any testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 66 2/3% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity (it being understood that if the Class B Stock shall remain outstanding following such transaction, each share of Class B Stock shall be counted as having ten votes per share for purposes of such calculation);
(3) any change in a majority of the Board within a 24-month period unless the change was approved by a majority of the Incumbent Directors;
(4) any liquidation or sale of all or substantially all of the assets of the Company; or
(5) any other transaction so denominated by the Board.
VII. "Class B Stock" means Class B Stock, par value $1.00 per share, of the Company.
VIII. "Code" means the Internal Revenue Code of 1986, as amended.
IX. "Company" means Harcourt General, Inc. and, after a Change of Control, any successor or successors thereto.
X. "Equity Pool" means the product of (i) 75,500,000 multiplied by (ii) the price per share received by shareholders in connection with the Change in Control, as determined by the Board in its sole discretion (the "Share Price") multiplied by (iii) zero if the Share Price is below $45, .55% if the Share Price is $45, .99% if the Share Price is $65 or higher and, if the Share Price is between $45 and $65, as determined by linear interpolation between .55% and .99%.
XI. "Good Reason" means any of the following actions on or after a Change of Control, without Executive's express prior written approval, other than due to Executive's Permanent Disability or death:
(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;
(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits;
(3) any diminution in Executive's title or reporting relationship, or substantial diminution in duties or responsibilities (other than solely as a result of a Change of Control in which the Company immediately thereafter is no longer publicly held);
(4) any relocation of Executive's principal place of business of 35 miles or more, other than normal travel consistent with past practice; or
(5) Executive's notice of termination of employment within the thirty-day period following the 183rd day following the Change of Control; provided Executive's employment actually terminates within such 30 day period.
Except as provided in (5) above, Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.
XII. "Incumbent Director" means a member of the Board at the beginning of the period in question, including any director who was not a member of the Board at the beginning of such period but was elected or nominated to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
XIII. "Permanent Disability" means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of his regular duties which inability has lasted for six months and is reasonably expected to be permanent.
XIV. "Publicly Traded Company" means a company whose common equity securities (including American Depositary Shares or American Depositary Receipts relating to such equity securities) are traded or quoted on a principal United States, Canadian or European stock market or trading system, and are owned by more than 1,000 shareholders.
XV. "Severance Multiple" means three.
XVI. "Subsidiary" means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).
XVII. "Target Bonus" means the greatest of (i) 50% of Executive's Base Salary (as determined in Section 3(a)(1)), (ii) Executive's target Bonus in effect on the date of the Change of Control or (iii) Executive's target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.
Schedule B
CALCULATION OF PENSION LUMP SUM AMOUNT
1. Lump Sum Amount
The lump sum value of the pension benefit payable pursuant to the provisions of Section 3(d) shall be equal to the Actuarial Equivalent of the single life annuity benefit described in the Harcourt General Inc. Supplemental Executive Retirement Plan (SERP) as enhanced by Section 3(d) of this Agreement.
The single life annuity amount above shall be determined at the earliest possible age the employee could retire under the Harcourt General Inc. Retirement Plan (after giving effect to the additional years of age and service granted under Section 3(d)), but not before the Executive=s age at the Termination Date plus such additional years of age.
2. Actuarial Equivalent Assumptions
The Actuarial Equivalent of the benefit described in (1) above shall be calculated using the following assumptions:
a. 6% interest, compounded annually
b. no pre-retirement mortality,
c. post-retirement mortality determined under the 1983 Group Annuity Mortality Table, weighted 50% for males and 50% for females.
3. Coordination of Agreement with existing SERP and Retirement Plan
Notwithstanding any provision in the SERP or this Agreement, the benefits provided under this Agreement are intended to enhance the benefits payable under the existing SERP. Accordingly, this Agreement shall be considered an Individual Pension Agreement, which shall have the effect of superseding in full any benefits actually payable under the SERP.
Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by Harcourt General, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the "Company"), pursuant to the attached Termination Protection Agreement ("TPA") dated June ____, 2000, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors' and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company's acknowledgement of my rights reserved under the second paragraph above.
I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
___________________________________
Employee's Signature
___________________________________
Print Name
___________________________________
Date Signed