EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT is entered into as of the 16th day of August, 2010 (the “Effective Date”), by and between The Princeton Review, Inc. (the “Company”), a Delaware corporation, and Christian G. Kasper (the “Executive”).
WHEREAS , the Company desires to retain the services and employment of the Executive and the Executive wishes to become employed by the Company;
WHEREAS , the Company and the Executive desire to enter into this Agreement in order to provide for the employment of the Executive by the Company upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE , in consideration of the foregoing and the mutual promises contained herein, the parties agree as follows:
1. Effective Date and Term . This Agreement shall become effective, and Executive’s employment under this Agreement will begin, on the Effective Date. The Executive shall be employed hereunder for the period starting on the Effective Date and continuing until the Termination Date, as that term is defined in Section 7(a)(v) below (such period of employment shall be referred to as the “Term”).
2. Employment .
(a) The Executive will be employed as the Executive Vice President and Chief Financial Officer or in such other position(s) as may be mutually agreed upon by the parties. The Executive will perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons employed in a similar executive capacity or as directed by the Company’s Chief Executive Officer (the “CEO”) or the CEO’s designee. The Executive shall report directly to the CEO (the “Reporting Structure”).
(b) The Executive will devote his full working time, attention and skill to the performance of his duties and responsibilities as an executive employee of the Company in a trustworthy and professional manner, and will use his best efforts to promote the interests of the Company. The Executive will not, without prior written approval of the Company, engage in any other activities that would interfere with the performance of his duties as an employee of the Company, are in violation of written policies of the Company, are in violation of applicable law, or would create an actual or perceived conflict of interest with respect to the Executive’s obligations as an employee of the Company. The Executive may (1) with advance notice to and consent of the Company, serve on corporate, civil or charitable boards or committees; (2) deliver lectures and teach at educational institutions; (3) serve as a personal representative or trustee; and (4) invest personally in any business where no conflict of interest exists between such investment and the business of the Company, provided those activities do not require a material time commitment by the Executive or are otherwise contrary to any provision of this Agreement.
3. Compensation . For so long as the Executive is employed by the Company under this Agreement, the Executive shall be paid the following compensation:
(a) Base Salary . The Executive’s initial base salary will be $375,000 per annum
(such base salary, as may be adjusted from time to time in accordance with this Section, the “Base Salary”), from which shall be deducted all required or authorized payroll deductions, including state and federal withholdings. The Base Salary shall be payable in accordance with the Company’s customary payroll practices applicable to its executives generally. The Base Salary will be reviewed, and may be increased, at least annually in a manner designated by the Board of Directors of the Company (the “Board”) or the Compensation Committee of the Board (the “Compensation Committee”) In addition, the Executive shall be compensated at a per diem rate of $1,500 for any days prior to the Effective date on which Executive spends a substantial portion of the working day working on Company matters at the request of the Company.
(b) Bonus . The Executive will be eligible for an annual bonus for each calendar year of his employment targeted at 100% of his Base Salary (the “Target Bonus”) based on the attainment of performance metrics established and revised annually by the Board or the Compensation Committee. The Board or the Compensation Committee, in its sole discretion, shall establish the eligibility criteria for such annual bonus, which may include Company financial projections and management goals specific to the Executive. Notwithstanding the foregoing, for the 2010 fiscal year, the annual bonus shall be $250,000, of which $75,000 will be paid as a Sign-on Bonus pursuant to Section 3(d) below. Each bonus earned by the Executive shall be paid to the Executive in cash, less all required or authorized tax and other withholdings, during the 2 1 / 2 month period following the end of the calendar year in which the bonus was earned.
(c) Stock Based Compensation .
(i) During the Term, the Executive will be eligible to be considered by the Compensation Committee for grants or awards of stock options or other stock-based compensation under the Company’s 2000 Stock Incentive Plan, as amended and restated on March 24, 2003 and as may hereafter be amended (the “Plan”) or similar plans as in effect from time to time. All grants or awards shall be governed by the relevant plan documents and requirements and shall be evidenced by the Company’s then-standard form of stock option, restricted stock or other applicable agreement.
(ii) As of the Effective Date and subject to the approval of the Compensation Committee of the Company’s Board of Directors (the “Board”), the Company shall grant the Executive an option to purchase 1,150,000 shares of the Company’s common stock, par value $0.01 per share, at a per share exercise price equal to the fair market value of a share of Company common stock on the effective date of the grant as determined under the terms of the Plan. Such option shall vest over a four-year period in equal quarterly installments, subject to the Executive’s continued employment with the Company on each such vesting date.
(d) Sign-on Bonus . The Company will pay the Executive an additional sign-on bonus of $75,000 in cash (the “Sign-on Bonus”) within 30 days of the Effective Date, less all required or authorized tax and other withholdings. If the Executive resigns other than for Good Reason (as defined below) on or prior to February 16, 2011 he will repay the Sign-on Bonus to the Company within 30 days of such termination.
4. Employee Benefits .
(a) Employee Benefits Generally . The Executive will be entitled to participate in all employee benefit plans, practices and programs maintained by the Company and made available to employees generally including, without limitation, all pension, retirement, profit sharing, savings, health, hospitalization, disability, dental, life or travel accident insurance benefit plans, vacation and sick leave in accordance with the terms of such plans, practices and programs as in effect from time to time.
(b) Executive Benefits . The Executive will also be entitled to participate in executive benefit or incentive compensation plans now maintained or hereafter established by the Company for the purpose of providing compensation and/or benefits to executives of the Company generally. Unless otherwise determined by the Compensation Committee, the Executive’s participation in such plans will be on the same basis and terms as other similarly situated executives of the Company. No additional compensation provided under any of such plans will be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive’s entitlements hereunder.
5. Reimbursements and Other Benefits .
(a) Expenses generally . The Company will pay all reasonable and properly documented expenses incurred by the Executive in furtherance of the Company’s business in accordance with applicable Company policies and procedures (“Expenses”).
(b) Vacation . The Executive may take 22 days of paid time off during each year (or such larger number as provided by Company policy) at such times as shall be consistent with the Company’s vacation policies and, in the CEO’s judgment, consistent with the needs of the Company.
(c) Directors and Officers Insurance . The Executive shall be added to the Company’s existing directors and officers insurance policies and the Executive shall be covered under such policies, as in effect from time to time.
6. Effect of Change in Control .
(a) Definition . For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events:
(i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in excess of 50% of either the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition of more than 50% of the Outstanding Company Common Stock directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company); (2) any acquisition of more than 50% of the Outstanding Company Common Stock by the Company; (3) any acquisition of more than 50% of the Outstanding Company Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (4) any acquisition by any Person who, prior to such acquisition, already owned more than 50% of the Outstanding Company Common Stock or Outstanding Company Voting Securities; or
(ii) such time as the majority of the members of the Board (or, if applicable, the board of directors of a successor corporation to the Company) is replaced during any 12-month period (commencing no earlier than the date of this Agreement) by directors whose appointment or election is not approved by a majority of the members of the Board prior to the date of the appointment or election; or
(iii) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a “Business Combination”), unless, immediately following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; or
(iv) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than in a bankruptcy proceeding, provided that the liquidation or dissolution otherwise meets the requirements of one of the events described in Sections 6(a)(i), (ii) or (iii) above.
In all respects, the definition of “Change in Control” shall be interpreted to comply with Internal Revenue Code Section 409A, and any successor statute, regulation and guidance thereto.
(b) Notwithstanding any provision of the Company’s 2000 Stock Incentive Plan, any stock option agreement or restricted stock or other stock award agreement or any other stock option plan to the contrary, if the Executive is employed by the Company upon the occurrence of a Change in Control, immediately prior to such Change in Control the unvested portion of the stock options held by the Executive on the date of the Change in Control shall vest and become immediately exercisable, and all restrictions shall lapse on any restricted stock or similar awards held by the Executive at such time which were not otherwise vested as of the date of the Change in Control.
(c) Gross-Up Payment.
(i) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “Severance Payments”), would be subject to the excise tax imposed by Internal Revenue Code Section 4999, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment or payments (collectively, the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Severance Payments, any Federal, state, and local income tax, employment tax and Excise Tax upon the payment provided by this Section, and any interest and/or penalties assessed with respect to such Excise Tax, shall be equal to the Severance Payments.
(ii) Subject to the provisions of Section 6(c)(iii) below, all determinations required to be made under this Section 6(c)(ii), including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm selected and paid for by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the Termination Date, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive’s residence on the Termination Date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. The Gross-Up Payment, if any, as determined pursuant to this Section 6(c)(ii), shall be paid to the relevant tax authorities as withholding taxes on behalf of the Executive at such time or times when each Excise Tax payment is due. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Internal Revenue Code Section 4999 at the time of the initial 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”). In the event that the Company exhausts its remedies pursuant to Section 6(c)(iii) below and the 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, consistent with the calculations required to be made hereunder, and any such Underpayment, and any interest and penalties imposed on the Underpayment and required to be paid by the Executive in connection with the proceedings described in Section 6(c)(iii) below, shall be promptly paid by the Company to the relevant tax authorities as withholding taxes on behalf of the Executive.
(iii) The 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 the Gross-up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows 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. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he 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), unless failure to do so could reasonably be expected to result in any criminal liability for the Executive. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, provided that the Company has set aside adequate reserves to cover the Underpayment and any interest and penalties thereon that may accrue, the Executive shall:
(A) give the Company any information reasonably requested by the Company relating to such claim,
(B) 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 selected by the Company,
(C) cooperate with th