Employment Agreement - Playboy Enterprises Inc. and Garry Saunders
PLAYBOY ENTERPRISES, INC.
CHRISTIE HEFNER
Chairman and
Chief Executive Officer
September 26, 1997
Mr. Garry Saunders
1001 Trophy Hills Drive
Las Vegas, NV 89134
Dear Garry:
It is with great pleasure that I offer you, contingent upon further reference
checking, the position of President - Gaming for Playboy Enterprises, Inc.
reporting directly to me.
You will be paid a base salary of $400,000 per year, to be paid on a biweekly
basis on our normal payroll dates. In addition, you are entitled to participate
in a Board approved executive incentive plan with an annual maximum potential of
60% of your base salary based upon divisional and Company performance. For
FY'98, the bonus will be prorated dependent upon your start date.
You will be a member of the Executive Committee of the Company. You will be
entitled to four weeks' paid vacation per calendar year. You will be entitled to
participate in any other executive benefits made available to other PEI
executives.
You will also be entitled to participation in the Company's Executive 1995 Long-
Term Incentive Plan. The long-term incentive plan includes two components: stock
options and restricted stock. Your stock option grant of 75,000 Class B options
vest in 25% increments over a four year period. The stock price of the options
is calculated as the closing price of the Class B stock the day preceding your
start date. You will also be entitled to 15,000 shares of Class B restricted
stock with accelerated vesting based upon financial performance achievement.
Under the restricted stock plan, your first payout of 2500 shares will be earned
upon the Company's achievement of $15 million Operating Income and the second
traunch of 12,500 shares at $20 million Operating Income. The plan, which was
implemented in FY'95, has already
680 North Lake Shore Drive
Chicago, Illinois 60611
312-751-8000
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September 26, 1997
Garry Saunders
Page Two
paid out its first two traunches as the initial two targets have been achieved.
Our three-year plan projects the achievement of both traunches over the next two
years. It is my expectation that once this plan successfully ends, it will be
replaced by another similar plan. Garry, as you know, Playboy's future gaming
strategy can potentially have a major impact on PEI's stock price.
If you should be terminated at any time not for cause (as defined below) you
will be entitled to receive no less than six months guaranteed severance and up
to an additional six months if you remain unemployed. "For cause" is defined as
conviction of a crime involving dishonesty, fraud or breach of trust, or
engaging in conduct materially injurious to Playboy.
You will be entitled to participate in the "parachute plan" that is described in
the attached.
I have not attempted to value the profit-sharing plan, the matching 401k plan,
deferred compensation plan or discounted employee stock plan but am providing a
brief description of these programs:
The 401K plan is a company-matching plan that allows for pre-tax contributions.
The Company matches 3.5% on the first 6% of compensation contributed each year.
The exact formula is explained in the attachments. Eligibility begins after the
first year of employment. There are a number of different investment options to
choose from and the plan is administered by Fidelity Investments.
The profit-sharing pool is determined at the end of each fiscal year. Each
employees' share is a function of compensation against the total compensation
pool of participants.
Last year, the Company implemented an Employee Stock Purchase Plan which allows
for the purchase of Playboy Class B stock at a 15% discount (limited to $25,000
or 10% of base salary by the IRS). You would be eligible to participate
immediately.
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September 26, 1997
Garry Saunders
Page Three
The Deferred Compensation Plan is another investment opportunity for the
executive group. It allows senior executives to defer a portion of base (from 5-
15%) and variable (up to 50%) compensation as a savings mechanism and to build
future financial security. The value of the account is paid out upon retirement
over a chosen period of time.
If the above is acceptable, please sign, date and return the enclosed copy of
this letter.
Once again, welcome to the Playboy family. I look forward to working with you.
Sincerely,
/s/ Christie Hefner
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Christie Hefner
ACCEPTED:
/s/ Garry Saunders
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Garry Saunders
October 3, 1997
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Date