Severance Agreement - Playboy Enterprises Inc.
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of
___________, by and between Playboy Enterprises, Inc., a Delaware corporation
(the "Company"), and ____________, (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive or key employee of the
Company and has made and is expected to continue to make major contributions to
the short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly-held companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for
the Executive to continue to remain in the ongoing employ of the Company;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change in
December 3, 2001
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Control or such higher rate as may be determined from time to time by the
Board of Directors of the Company (the "Board") or a Committee thereof.
(b) "Change in Control" means any of the following occurrences
during the Term:
(i) Hugh M. Hefner directly or as beneficial owner and
Christie Hefner cease collectively to hold over 50% of the combined
voting power of the then-outstanding securities entitled to vote
generally in the election of directors of the Company ("Voting
Stock");
(ii) except pursuant to a transaction described in the
proviso to Section 1(b)(iv) or (v), a sale, exchange or other
disposition of PLAYBOY Magazine;
(iii) except pursuant to a transaction described in the
proviso to Section 1(b)(iv) or (v), the liquidation or dissolution
of the Company;
(iv) the Company is merged, consolidated or reorganized
into or with another corporation or other legal person; provided,
however, that no such merger, consolidation or reorganization will
constitute a Change in Control if the merger, consolidation or
reorganization is initiated by the Company and as a result of such
merger, consolidation or reorganization not less than a majority of
the combined voting power of the then-outstanding securities of the
surviving, resulting or ultimate parent corporation, as the case
may be, immediately after such transaction is held in the aggregate
by persons who held not less than a majority of the combined voting
power of the outstanding Voting Stock of the Company immediately
prior to such transaction;
(v) the Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal person; provided, however, that no such sale or transfer will
constitute a Change in Control if the sale or transfer is initiated
by the Company and as a result of such sale or transfer not less
than a majority of the
2 December 3, 2001
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combined voting power of the then-outstanding securities of such
corporation or other legal person, as the case may be, immediately
after such sale or transfer is held in the aggregate by persons who
held not less than a majority of the combined voting power of the
outstanding Voting Stock of the Company immediately prior to such
sale or transfer;
(vi) an equity or other investment in the Company, the
result of which is that Christie Hefner ceases to serve as the
Company's Chief Executive Officer or relinquishes upon request or is
divested of any of the following responsibilities: (i) functioning
as the person primarily responsible for establishing policy and
direction for the Company or (ii) being the person to whom the
senior executives of the Company report; or
(vii) the adoption by the Board of a resolution that,
for purposes of this Agreement, a Change in Control has occurred.
For purposes of Section 1(b)(i), any Voting Stock beneficially owned
(as such term is defined under Rule 13d-3 or any successor rule or regulation
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by
the Hugh M. Hefner Foundation shall be deemed to be held by Christie Hefner if
and so long as she has sole voting power with respect to such Voting Stock.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) hereof, the Executive shall have:
(i) been convicted of a criminal violation involving
dishonesty, fraud or breach of trust; or
(ii) willfully engaged in misconduct in the performance
of Executive's duties that materially injures the Company or any
entity in which the Company directly or indirectly beneficially owns
50% or more of the voting securities (a "Subsidiary").
(d) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limita-
3 December 3, 2001
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tion any stock option, stock purchase, stock appreciation, savings,
pension, supplemental executive retirement, or other retirement income or
welfare benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital or other insurance (whether funded by
actual insurance or self-insured by the Company), disability, salary
continuation, executive protection, expense reimbursement and other
employee benefit policies, plans, programs or arrangements that may now
exist or any equivalent successor policies, plans, programs or
arrangements that may be adopted hereafter by the Company, providing
perquisites, benefits and service credit for benefits at least as great in
the aggregate as are provided thereunder immediately prior to a Change in
Control.
(e) "Incentive Pay" means bonus, incentive or other payments
of cash compensation, in addition to Base Pay, made or to be made in
regard to services rendered pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement,
policy, plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto providing benefits at least as great as
the benefits provided thereunder immediately prior to a Change In Control.
(f) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following subsections
shall have occurred:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(ii) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(iii) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has
occurred.
(g) "Potential Change in Control Period" shall commence upon
the occurrence of a Potential Change in Control and shall lapse upon the
occurrence of a Change in Control or, if earlier (i) with respect to a
Potential
4 December 3, 2001
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Change in Control occurring pursuant to Section 1(f)(i), immediately upon
the abandonment or termination of the applicable agreement, (ii) with
respect to a Potential Change in Control occurring pursuant to Section
1(f)(ii), immediately upon a public announcement by the applicable party
that such party has abandoned its intention to take or consider taking
actions which if consummated would result in a Change in Control or (iii)
with respect to a Potential Change in Control occurring pursuant to
Section 1(f)(iii), upon the one year anniversary of the occurrence of a
Potential Change in Control (or such earlier date as may be determined by
the Board).
(h) "Severance Period" means the period of time commencing on
the date of each occurrence of a Change in Control and continuing until
the earliest of (i) eighteen months following the occurrence of the Change
in Control, (ii) the Executive's death, or (iii) the Executive's
attainment of age 65; provided, however, that commencing on each
anniversary of the Change in Control, the Severance Period will
automatically be extended for an additional eighteen months unless, not
later than 120 calendar days prior to such date, either the Company or the
Executive shall have given written notice to the other that the Severance
Period is not to be so extended.
(i) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December 31,
20__, or (ii) the expiration of the Severance Period; provided, however,
that (A) commencing on January 1, ____ and each January 1 thereafter, the
term of this Agreement will automatically be extended for an additional
year unless, not later than September 30 of the immediately preceding
year, the Company or the Executive shall have given notice that it or the
Executive, as the case may be, does not wish to have the Term extended,
and (B) if, prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or any Subsidiary, thereupon
without further action the Term shall be deemed to have expired and this
Agreement will immediately terminate and be of no further effect. For
purposes of this Section 1(i), the Executive shall not be deemed to have
ceased to be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(j) "Targeted Bonus" shall mean the targeted bonus for
Executive's position as set forth in the Company's Executive Incentive
Compensation Plan ("EICP") established for the then applicable fiscal
year,
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which shall be equal to fifty percent (50%) times the maximum amount which
Executive could earn under the EICP with respect to established
quantifiable and objective financial goals.
2. Operation of Agreement: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to, the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. Termination Following a Change in Control:
(a) In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company during the
Severance Period and the Executive shall not be entitled to the benefits
provided by Section 4 only upon the occurrence of one or more of the
following events:
(i) The Executive's death;
(ii) If the Executive becomes disabled (as defined
below) and begins actually to receive disability benefits pursuant
to the long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is
terminated by the Company other than pursuant to Section 3(a)(i), 3(a)(ii)
or 3(a)(iii), the Executive will be entitled to the benefits provided by
Section 4 hereof. For purposes of this Agreement, Executive shall be
deemed "disabled" if, by reason of physical or mental disability,
Executive becomes unable to perform the services required of Executive for
more than 120 days in the aggregate (excluding infrequent and temporary
absences due to ordinary transitory illness) during any twelve-month
period.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation as
6 December 3, 2001
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provided in Section 4 upon the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as
hereinabove provided, for such termination exists or has occurred,
including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain
the Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
(ii) (I) Executive is assigned duties materially
inconsistent with the authorities, powers, functions, status,
responsibilities or duties attached to the position with the Company
and any Subsidiary which the Executive held immediately prior to the
Change in Control; (II) a reduction in the aggregate of the
Executive's Base Pay and Incentive Pay payable to the Executive by
the Company and any Subsidiary; or (III) the termination or denial
of the Executive's rights to Employee Benefits or a reduction in the
scope or value thereof;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties hereto
provided such determination is reasonable and has been made in good
faith and in all events will be presumed to be a reasonable
determination made in good faith unless otherwise shown by the
Company by clear and convincing evidence) that a change in
circumstances has occurred following a Change in Control, including
without limitation a change in the scope of the business or other
activities for which the Executive was responsible immediately prior
to the Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the
Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after
7 December 3, 2001
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written notice to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation
or reorganization of the Company or transfer of all or substantially
all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (directly or by
operation of law) shall have assumed all duties and obligations of
the Company under this Agreement pursuant to Section 10(a);
(v) The Company or any of its Subsidiaries requires the
Executive regularly to perform Executive's duties of employment
beyond a 50-mile radius from the location of Executive's employment
immediately prior to the Change in Control or requires the Executive
to travel away from Executive's office in the course of discharging
Executive's responsibilities or duties hereunder at least 50% more
(in terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior
year) than was required of Executive in any of the three full years
immediately prior to the Change of Control without, in either case,
Executive's prior written consent.
(c) A termination by the Company pursuant to Section 3(a) or
3(d) or by the Executive pursuant to Section 3(b) or 3(d) will not affect
any rights or benefits which the Executive may have pursuant to any
agreement, policy, plan, program or arrangement of the Company providing
Employee Benefits, which rights and benefits shall be governed by the
terms thereof, including, without limitation, rights to payments under the
Company's bonus and incentive plans for prior fiscal years which have been
earned but not yet paid to Executive, except for any rights to severance
compensation to which Executive may be entitled upon termination of
employment under any employment agreement Executive may have with the
Company, which rights shall, during the Severance Period, be superceded by
this Agreement.
(d) For purposes of this Agreement, a termination of
Executive's employment during a Potential Change in Control Period (A) by
the Company other than pursuant to the events described in Section
3(a)(i),
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3(a)(ii) or 3(a)(iii) or (B) by Executive following the occurrence of one
of the events described in Section 3(b)(i) through (v) shall be deemed to
be a termination of Executive's employment during the Severance Period
entitling Executive to benefits provided by Section 4.
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4. Severance Compensation:
(a) If, following the occurrence of a Change in Control, the
Company terminates the Executive's employment during the Severance Period
other than pursuant to Section 3(a), or if the Executive terminates
Executive's employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within ten business days after the
date (the "Termination Date") that the Executive's employment is
terminated (the effective date of which shall be the date of termination,
or such other date that may be specified by the Executive if the
termination is pursuant to Section 3(b)) and continue to provide to the
Executive the following benefits:
(i) a lump sum cash payment (the "Severance Payment") in
an amount equal to three times the sum of (A) Base Pay, plus (B) the
greater of (x) the average actual bonus earned by the Executive
pursuant to any annual bonus or incentive plan maintained by the
Company in respect of the three fiscal years ending immediately
prior to the fiscal year in which occurs such Change in Control (or,
such lesser number of years during which the Executive was employed
by the Company and annualized in the case of any such bonus paid in
respect of a portion of a fiscal year) and (y) the Targeted Bonus
(determined in accordance with Section 1(j) (the greater of (x) and
(y) being hereinafter referred to as the "Highest Bonus");
(ii) for 36 months following the Termination Date (the
"Continuation Period"), the Company will arrange to provide the
Executive with Employee Benefits that are welfare benefits (but not
stock option, stock purchase, stock appreciation or similar
compensatory benefits) no less favorable than those which the
Executive was receiving or entitled to receive immediately prior to
the Termination Date, including benefits provided under the
Company's Executive Protection Plan. If and to the extent that any
benefit described in this Section 4(a)(ii) is not or cannot be paid
or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will
itself pay or provide for the payment to the Executive, or
Executive's dependents and beneficiaries, of such Employee Benefits.
Without otherwise limiting the purpose or effect of Section 5,
Employee Benefits otherwise receiv-
10 December 3, 2001
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able by the Executive pursuant to this Section 4(a)(ii) will be
reduced to the extent comparable welfare benefits are actually
received by the Executive from another employer during the
Continuation Period.
(iii) Notwithstanding any provision of any annual or
long-term incentive plan to the contrary, the Company shall pay to
the Executive a lump sum amount, in cash, equal to the sum of (x)
any unpaid incentive compensation which has been allocated or
awarded to the Executive for a completed fiscal year or other
measuring period preceding the Termination Date under any such plan
and which, as of the Termination Date, is contingent only upon the
continued employment of the Executive to a subsequent date, and (y)
the product of the Highest Bonus and a fraction, the numerator of
which is the number of days in the fiscal year in which the
Termination Date occurs prior to the Termination Date and the
denominator of which is 365.
(iv) Notwithstanding the terms or conditions of any
awards relating to a grant of restricted shares, all restricted
shares which are not vested as of the Termination Date shall become
fully vested.
(v) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
(b) There will be no right of set-off or counterclaim in
respect of any claim, debt or obligation against any payment to or benefit
for the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company
will pay interest on the amount or value thereof at the prime rate in
effect at the First National Bank of Chicago. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
11 December 3, 2001
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(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under Sections
6 and 7 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
5. No Mitigation Obligation: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. Accordingly, the payment of the severance compensation by
the Company to the Executive in accordance with the terms of this Agreement is
hereby acknowledged by the Company to be reasonable and will be liquidated
damages, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise reduce any payments or benefits
to be provided to Executive hereunder, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. Certain Additional Payments by the Company:
(a) In the event that this Agreement becomes operative and it
is determined (as hereafter provided) that any payment or distribution by
the Company or any of its affiliates to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right, or
the lapse or termination of any restriction on or the vesting or
exercisability of any of the foregoing (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (or any successor provision thereto), or to any similar
tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such
interest and penalties, are hereafter collectively referred to as the
"Excise Tax"), then Executive will be entitled to receive an additional
payment or payments (a "Gross-Up Payment") in an amount such that, after
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payment by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any 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.
(b) Subject to the provisions of Section 6(f) below, all
determinations required to be made under this Section 6, including whether
an Excise Tax is payable by Executive and the amount of such Excise Tax
and whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, will be made by a nationally recognized firm of certified public
accountants (the "Accounting Firm") selected by Executive in Executive's
sole discretion. Executive will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and
Executive within 15 calendar days after the date of the Change in Control
or the date of Executive's termination of employment, if applicable, and
any other such time or times as may be requested by the Company or
Executive. For purposes of determining the amount of the Gross-Up Payment,
the Executive shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's residence on the Termination Date (or if there is no
Termination Date, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6(b)), net of the maximum
reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. If the Accounting Firm determines that any
Excise Tax is payable by Executive, the Company will pay the required
Gross-Up Payment to Executive within five business days after receipt of
such determination and calculations. If the Accounting Firm determines
that no Excise Tax is payable by Executive, it will, at the same time as
it makes such determination, furnish Executive with an opinion that
Executive has substantial authority not to report any Excise Tax on
Executive's federal, state, local income or other tax return. Any
determination by the Accounting Firm as to the amount of the Gross-Up
Payment will be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made (an "Underpayment"), consistent with
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the calculations required to be made hereunder. In the event that the
Company exhausts or fails to pursue its remedies pursuant to Section 6(f)
below and Executive thereafter is required to make a payment of any Excise
Tax, Executive will direct the Accounting Firm to determine the amount of
the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Company to, or for the benefit of, Executive within five business days
after receipt of such determination and calculations.
(c) The Company and Executive will each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by Section 6(b) above.
(d) The federal, state and local income or other tax returns
filed by Executive will be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax
payable by Executive. Executive will make proper payment of the amount of
any Excise Tax. If prior to the filing of Executive's federal income tax
return, or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up Payment should
be reduced, Executive will within five business days pay to the Company
the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 6(b) and (d) above will be borne by the Company.
If such fees and expenses are initially advanced by Executive, the Company
will reimburse Executive the full amount of such fees and expenses within
five business days after receipt from Executive of a statement therefor
and reasonable evidence of Executive's payment thereof.
(f) Executive will notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be
given as promptly as practicable, but no later than 10 business days after
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Executive actually receives notice of such claim, and Executive will
further apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid (in each case, to the extent
known by Executive). Executive will not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the
date on which Executive gives such notice to the Company and (ii) the date
that any payment of amount 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 will:
(i) provide the Company with any written records or
documents in Executive's possession relating to such claim
reasonably requested by the Company;
(ii) take such action in connection with contesting such
claim as the Company will reasonably request in writing from time to
time, including without limitation accepting legal representation
with respect to such claim by an attorney competent in respect of
the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company will bear and pay directly all
costs and expenses (including interest and penalties) incurred in
connection with such contest and will indemnify and hold harmless
Executive, on an after-tax basis, for and against 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 limiting the foregoing provisions of this Section
6(f), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 6(f) 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 (provided that Executive may
participate therein at Executive's own cost and expense) and may, at
its
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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 will determine;
provided, however, that if the Company directs Executive to pay the
tax claimed and sue for a refund, the Company will advance the
amount of such payment to Executive on an interest-free basis and
will 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; and
provided further, however, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
Executive with respect to which the contested amount is claimed to
be due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim will be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and Executive will 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.
(g) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Section 6(f) above, Executive receives any
refund with respect to such claim, Executive will (subject to the
Company's complying with the requirements of Section 6(f) above) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after any taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by the Company pursuant to
Section 6(f) above, a determination is made that Executive will 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 or refund
prior to the expiration of 30-calendar-days after such determination, then
such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid pursuant to this Section 6.
7. Legal Fees and Expenses: If it should appear to the Executive
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void, invalid or
unenforceable, or institutes
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any litigation or other action or proceeding designed to deny, or to recover
from, the Executive the benefits provided or intended to be provided to the
Executive hereunder, the Company irrevocably authorizes the Executive from time
to time to retain counsel of Executive's choice, at the expense of the Company
as hereafter provided, to advise and represent the Executive in connection with
any such interpretation, enforcement or defense, including without limitation
the initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. The Company will pay and be solely financially
responsible for Executive's out-of-pocket expenses, including reasonable
attorneys' fees and expenses, incurred by the Executive in connection with any
of the foregoing; provided, however, in the case of any such litigation or other
action or proceeding in which the Company or any of its affiliates and Executive
are adverse parties, the Company shall not pay or be responsible for any such
expenses if the Company or any of its affiliates prevails against the Executive.
8. Employment Rights; Termination Prior to Change in Control:
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any Subsidiary prior to or following any Change in
Control.
9. Withholding of Taxes: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
10. Successors and Binding Agreement:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to all or substantially all of the business or assets of the Company, by
agreement in form and substance satisfactory to the Executive, expressly
to assume and agree to perform this Agreement in the same manner and to
the same extent the Company would be required to perform if no such
succession
17 December 3, 2001
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had taken place. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company, including without
limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or
delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer
or delegate this Agreement or any rights or obligations hereunder except
as expressly provided in Sections 10(a) and 10(b) hereof. Without limiting
the generality or effect of the foregoing, the Executive's right to
receive payments hereunder will not be assignable, transferable or
delegable, whether by pledge, garnishment, creation of a security
interest, claims for alimony, or otherwise, other than by a transfer by
Executive's will or by the laws of descent and distribution and, in the
event of any attempted assignment or transfer contrary to this Section
10(c), the Company shall have no liability to pay any amount so attempted
to be assigned, transferred or delegated.
11. Notices: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at Executive's
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
18 December 3, 2001
<PAGE>
12. Dispute Resolutions: Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
19 December 3, 2001
<PAGE>
13. Governing Law: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
14. Validity: If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
15. Miscellaneous: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement. Effective as of the date hereof, this Agreement supercedes and
replaces the prior Severance Agreement entered into between the Executive and
the Company.
16. Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
20 December 3, 2001
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PLAYBOY ENTERPRISES, INC,
By:_________________________________
Title:______________________________
ACCEPTED and AGREED to:
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21 December 3, 2001