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EXHIBIT 10.3
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 29, 2007, among Clarke
American
Corp., a Delaware corporation ("CLARKE AMERICAN") renamed as
Harland Clarke
Holdings Corp. ("HARLAND CLARKE HOLDINGS"), Scantron
Corporation, a Delaware
corporation ("SCANTRON" or the "COMPANY"), and Jeffrey Heggedahl
(the
"EXECUTIVE").
WHEREAS, on December 19, 2006, Harland, M&F Worldwide Corp.
("MFW") and
H Acquisition Corp., a Georgia corporation and a wholly owned
subsidiary of
MFW, entered into an Agreement and Plan of Merger whereby H
Acquisition Corp.
merged with and into John H. Harland Company, a Georgia
corporation
("HARLAND"), and as a result, the separate corporate existence
of H Acquisition
Corp. ceased and Harland continued as the surviving corporation
effective May
1, 2007 (the "TRANSACTION");
WHEREAS, the Company wishes to employ the Executive, and the
Executive
wishes to accept such employment on the terms and conditions set
forth in this
Agreement.
Accordingly, Harland Clarke Holdings, the Company and the
Executive
hereby agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT, DUTIES. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render
exclusive and
full-time services to the Company as President and Chief
Executive Officer of
Scantron or in such other executive position as may be mutually
agreed upon by
the Company and the Executive, and to perform such other duties
consistent with
such position as may be assigned to the Executive by the Board
of Directors of
Harland Clarke Holdings (the "BOARD"). During the Term, the
Executive shall
report solely to the Board and to the Chief Executive Officer of
MFW.
1.2 ACCEPTANCE. The Executive hereby accepts such
employment and agrees to render the services described above.
During the Term,
the Executive agrees to serve the Company faithfully and to the
best of the
Executive's ability, to devote the Executive's entire business
time, energy and
skill to such employment, and to use the Executive's best
efforts, skill and
ability to promote the Company's interests. The Executive
further agrees to
accept election, and to serve during all or any part of the
Term, as an officer
or director of the Company and of any subsidiary or affiliate of
the Company,
without any compensation therefor other than that specified in
this Agreement,
if elected to any such position by the shareholders or by the
Board or of any
subsidiary or affiliate, as the case may be.
1.3 LOCATION. The duties to be performed by the Executive
hereunder shall be performed primarily at the offices of the
Company in Irvine,
California, subject to reasonable travel requirements on behalf
of the Company.
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2. TERM OF EMPLOYMENT; CERTAIN POST-TERM BENEFITS.
2.1 THE TERM. This Agreement and the term of the
Executive's employment under this Agreement (the "TERM") shall
become effective
as of May 2, 2007 (the "EFFECTIVE DATE") and will continue until
December 31,
2010 (the "TERMINATION DATE"), subject to earlier termination
pursuant to
Section 4.
2.2 END-OF-TERM PROVISIONS. Prior to the end of the Term,
the Company and the Executive shall meet to discuss whether the
Term should be
extended. The Company shall have the right at any time, however,
to give
written notice of non-renewal of the Term. In the event of
non-renewal of the
Term by the Company and the Executive's employment is terminated
after the end
of the Term, other than for Cause (as defined below), or
Disability (as defined
below) following such notice of non-renewal, then such
termination shall be
treated as a termination without Cause and the Restricted Period
(as defined
below) shall be reduced to a period of one year post termination
of employment
(the "REDUCED RESTRICTED PERIOD"). During such Restricted
Period, the Executive
shall receive 50% of the payments set forth in Sections 4.4(i)
and 4.4(ii),
subject to Executive's signing and not revoking the release of
claims as set
forth in Section 4.6. For the avoidance of doubt, if the Company
is willing to
extend the Term and Executive does not agree to extend the Term,
then upon such
termination of employment at the end of the Term, the Executive
shall be bound
by the restrictive covenants set forth in Section 5 below, the
Restricted
Period shall not be reduced and Executive shall not be entitled
to receive any
severance benefits with respect to such termination.
3. COMPENSATION; BENEFITS.
3.1 SALARY. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the
Executive a base
salary, payable in accordance with the Company's normal payroll
practices, at
the annual rate of not less than $500,000 less such deductions
or amounts to be
withheld as required by applicable law and regulations (the
"BASE SALARY"). In
the event that the Company, in its sole discretion, from time to
time
determines to increase the Base Salary, such increased amount
shall, from and
after the effective date of the increase, constitute "Base
Salary" for purposes
of this Agreement.
3.2 INCENTIVE COMPENSATION.
3.2.1 ANNUAL BONUS. For fiscal year 2007, the
Executive's bonus, if any (the "2007 BONUS"), shall be
determined in
the following manner: (a) with respect to the period from
January 1,
2007 through April 30, 2007, the Executive shall receive an
amount in
bonus compensation equal to what the Executive was entitled to
receive
under the Harland Senior Management Incentive Plan for such
period had
such plan terminated at April 30, 2007, and (b) Harland Clarke
Holdings
shall establish for the Company a bonus plan applicable to
the
remaining portion of fiscal year 2007 from and after May 1,
2007, as
approved by the Compensation Committee of MFW's board of
directors (the
"MFW COMPENSATION COMMITTEE") which may be, but need not be,
designed
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to cause the 2007 Bonus to qualify as "performance-based
compensation,"
as more fully set forth in the last sentence of the second
paragraph of
this Section 3.2.1, and such bonus plan shall be calculated
consistent
with the percentages set forth in the table below. Any such
bonus
amounts payable with respect to 2007 pursuant to clauses (a) and
(b)
shall be paid consistent with past practice in fiscal year
2008.
Commencing with the 2008 fiscal year, the Executive will be
eligible to
receive a bonus with respect to 2008 and each later fiscal year
ending
during the Term computed in accordance with the provisions
hereafter.
If, with respect to any such fiscal year, Scantron achieves
"Consolidated EBITDA" (as defined below) of at least the
percentage set
forth in the table below of its business plan for such fiscal
year,
such bonus shall be the percentage set forth in the table below
of Base
Salary with respect to the fiscal year for which the bonus (any
such
bonus, an "ANNUAL BONUS") was earned:
PERCENTAGE OF CONSOLIDATED
EBITDA IN BUSINESS PLAN PERCENTAGE OF BASE SALARY
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89.9% and below Nil
90 - 94.9 65
95 - 99.9 70
100 - 105 75
105.1 - 110 80
110.1 - 115 85
115.1 - 120 90
120.1- 125 95
125.1 and over 100
An Annual Bonus if earned in accordance with this Agreement
shall be paid no
later than the fifteenth day of the third month next following
the year with
respect to which such bonus was earned, provided that, except as
otherwise
specifically provided in this Agreement (including, without
limitation, Section
4.4), as a condition precedent to any bonus entitlement the
Executive must
remain in employment with the Company at the time that the
Annual Bonus is
paid. Notwithstanding the foregoing, to the extent that Section
162(m) of the
Internal Revenue Code of 1986, as amended (the "CODE"), may be
applicable, such
Annual Bonus shall be subject to, and contingent upon, such
shareholder
approval as is necessary to cause the Annual Bonus to qualify
as
"performance-based compensation" under Section 162(m) of the
Code and the
regulations promulgated thereunder as well as approval of this
Section 3.2.1 by
the MFW Compensation Committee and any other required
committees.
For the purposes of this Agreement, "CONSOLIDATED EBITDA" means
for any fiscal
year of the Company, consolidated operating income for such
fiscal year of
Scantron plus, without duplication, the sum of (i) depreciation
and
amortization expense (excluding amounts of prepaid incentives
under customer
contracts), (ii) any extraordinary non-cash expenses or losses,
and (iii)
allocation of fees charged by MFW or a subsidiary to the Company
relating to
the operation of Scantron, and minus (x) to the extent included
in the
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statement of such consolidated net income for such period, the
sum of any
extraordinary or non-recurring income or gains (including,
whether or not
otherwise includable as a separate item in the statement of such
consolidated
operating income for such period, gains on the sales of assets
outside of the
ordinary course of business), and (y) any cash payments made
during such period
in respect of items described in clause (ii) above subsequent to
the fiscal
quarter in which the relevant non-cash expenses or losses were
reflected as a
charge in the statement of consolidated operating income, all as
determined on
a consolidated basis, all of the foregoing to be determined by
the Board or the
MFW Compensation Committee, as applicable. For the purposes of
determining
compensation milestones for any fiscal year, Consolidated EBITDA
will be
adjusted by the Board or the MFW Compensation Committee, as
applicable, as
appropriate for material acquisitions or dispositions of any
business or assets
of or by Scantron or its subsidiaries for such fiscal year and
thereafter.
3.2.2 LONG TERM INCENTIVE PLAN. During the Term, the
Executive shall participate in the Long Term Incentive Plan
("LTIP") of
MFW which shall be established and become effective as of
January 1,
2008. The Executive will receive 80% of the "LTIP bonus pool
attributed
to Scantron," as defined in, and in accordance with, the LTIP.
Further
details regarding participation in the LTIP are set forth on
ANNEX A
attached hereto. If the Term is extended, the Executive
shall
participate in a new Long Term Incentive Plan that shall
commence after
the LTIP ends. Notwithstanding the foregoing, to the extent
that
Section 162(m) of the Code may be applicable, the LTIP (and
any
subsequent Long Term Incentive Plan) shall be subject to,
and
contingent upon, such shareholder approval as is necessary to
cause the
LTIP to qualify as "performance-based compensation" under
Section
162(m) of the Code and the regulations promulgated
thereunder.
3.3 BUSINESS EXPENSES. The Company shall pay or reimburse
the Executive for all reasonable expenses actually incurred or
paid by the
Executive during the Term in the performance of the Executive's
services under
this Agreement, upon presentation of expense statements or
vouchers or such
other supporting information as the Company customarily may
require of its
officers PROVIDED, HOWEVER, that the maximum amount available
for such expenses
during any period may be fixed in advance by the Board.
3.4 VACATION. During the Term, the Executive shall be
entitled to a vacation period or periods of four (4) weeks
during any fiscal
year taken in accordance with the vacation policy of the Company
during each
year of the Term. Vacation time not used by the end of a year
shall be
forfeited.
3.5 FRINGE BENEFITS. During the Term, the Executive shall
be entitled to all benefits for which the Executive shall be
eligible under any
qualified pension plan, 401(k) plan, group insurance or other
so-called
"fringe" benefit plan which the Company provides to its
executive employees
generally, which benefits may be subject to change to reflect
the objectives
and requirements of the Transaction.
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3.6 RELOCATION. The Company shall provide the Executive
with reasonable and customary relocation benefits in connection
with the
Executive's move from his current primary residence to
California, in
accordance with the relocation policy of Harland as in effect
immediately prior
to the Transaction.
4. TERMINATION.
4.1 DEATH. If the Executive dies during the Term, the Term
shall terminate forthwith upon the Executive's death. The
Company shall pay to
the Executive's estate: (i) any Base Salary earned but not paid;
(ii) a pro
rated Annual Bonus based on the number of days of the fiscal
year worked by the
Executive; and (iii) amounts payable under the LTIP in
accordance with the
terms thereof. The Executive shall have no further rights to any
compensation
(including any Base Salary or Annual Bonus) or any other
benefits under this
Agreement, except to the extent already earned and vested as of
the day
immediately prior to his death, or as earned, vested, or accrued
by virtue of
his death.
4.2 DISABILITY. If, during the Term the Executive is unable
to perform his duties hereunder due to a physical or mental
incapacity for a
period of 6 months within any 12 month period (hereinafter a
"DISABILITY"), the
Company shall have the right at any time thereafter to terminate
the Term upon
sending written notice of termination to the Executive. If the
Company elects
to terminate the Term by reason of Disability, the Company shall
pay to the
Executive promptly after the notice of termination: (i) any Base
Salary earned
but not paid, (ii) a pro rated Annual Bonus based on the number
of days of the
fiscal year worked by the Executive until the date of the notice
of
termination, and (iii) amounts payable under the LTIP in
accordance with the
terms thereof, in each case less any other benefits payable to
the Executive
under any disability plan provided for hereunder or otherwise
furnished to the
Executive by the Company. The Executive shall have no further
rights to any
compensation (including any Base Salary or Annual Bonus) or any
other benefits
under this Agreement except to the extent already earned and
vested as of the
day immediately prior to his termination by reason of
Disability, or as earned,
vested, or accrued by virtue of his Disability.
4.3 CAUSE. The Company may at any time by written notice to
the Executive terminate the Term for "Cause" (as defined below)
and, upon such
termination, this Agreement shall terminate and the Executive
shall be entitled
to receive no further amounts or benefits hereunder, except for
any Base Salary
earned but not paid prior to such termination. For the purposes
of this
Agreement, "CAUSE" means: (i) continued neglect by the Executive
of the
Executive's duties hereunder, (ii) continued incompetence or
unsatisfactory
attendance, (iii) conviction of any felony, (iv) violation of
the rules,
regulations, procedures or instructions relating to the conduct
of employees,
directors, officers and/or consultants of the Company, (v)
willful misconduct
by the Executive in connection with the performance of any
material portion of
the Executive's duties hereunder, (vi) breach of fiduciary
obligation owed to
the Company or commission of any act of fraud, embezzlement,
disloyalty or
defalcation, or usurpation of a Company opportunity, (vii)
breach of any
provision of this Agreement, including any non-competition,
non-solicitation
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and/or confidentiality provisions hereof, (viii) any act that
has a material
adverse effect upon the reputation of and/or the public
confidence in the
Company, (ix) failure to comply with a reasonable order, policy
or rule that
constitutes material insubordination, (x) engaging in any
discriminatory or
sexually harassing behavior or (xi) using, possessing or being
impaired by or
under the influence of illegal drugs or the abuse of controlled
substances or
alcohol on the premises of the Company or any of its
subsidiaries or affiliates
or while working or representing the Company or any of its
subsidiaries or
affiliates. A termination for Cause by the Company of any of the
events
described in clauses (i), (ii), (iv), (ix), (x) and (xi) shall
only be
effective on 15 days advance written notification, providing
Executive the
opportunity to cure, if reasonably capable of cure within said
15-day period;
provided, however, that no such notification is required if the
Cause event is
not reasonably capable of cure or the Board determines that its
fiduciary
obligation requires it to effect a termination of Executive for
Cause
immediately.
4.4 TERMINATION BY COMPANY WITHOUT CAUSE OR BY THE
EXECUTIVE FOR GOOD REASON. If the Executive's employment is
terminated by the
Company without Cause (other than by reason of death or
Disability) or by the
Executive for Good Reason (as defined below), the Executive
shall receive: (i)
as severance pay, an amount equal to two times the Base Salary
payable in
installments in accordance with the Company's normal payroll
practices, (ii)
continuation for a 12-month period following the date of
termination of group
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