<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2275
THE SEAGRAM COMPANY LTD.
(Exact name of registrant as specified in its charter)
Canada None
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
(Address of principal executive offices) (Zip Code)
514-987-5200
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
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 April 30, 2000, there were 436,468,603 common shares without nominal or
par value issued and outstanding.
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings -
Quarter and Nine Months Ended March 31, 2000 and 1999 1
Consolidated Balance Sheet -
March 31, 2000 and June 30, 1999 2
Consolidated Statement of Cash Flows -
Nine Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit Index 24
<PAGE> 3
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(United States dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,375 $ 3,215 $ 11,988 $ 8,789
Cost of revenues 2,009 1,991 6,940 5,265
Selling, general and administrative expenses 1,367 1,387 4,470 3,322
Restructuring charge (credit) -- -- (59) 405
--------- --------- --------- ---------
Operating income (loss) (1) (163) 637 (203)
Interest, net and other expense 164 184 487 301
Gain on sale of businesses -- -- 98 --
--------- --------- --------- ---------
(165) (347) 248 (504)
Provision (benefit) for income taxes 114 (93) 75 (18)
Minority interest (3) (10) 17 (27)
Equity earnings from unconsolidated companies 11 45 96 129
--------- --------- --------- ---------
Income (loss) from continuing operations (265) (199) 252 (330)
Loss from discontinued Tropicana operations, after tax -- -- -- (3)
Gain on sale of discontinued Tropicana operations, after tax -- -- -- 1,072
Cumulative effect of change in accounting principle, after tax -- -- (84) --
--------- --------- --------- ---------
Net income (loss) (265) (199) 168 739
Retained earnings at the beginning of period 8,997 9,091 8,707 8,268
Dividends paid (72) (66) (215) (181)
--------- --------- --------- ---------
Retained earnings at end of period $ 8,660 $ 8,826 $ 8,660 $ 8,826
========= ========= ========= =========
Basic earnings (loss) per share $ (0.61) $ (0.50) $ 0.39 $ 2.00
========= ========= ========= =========
Diluted earnings (loss) per share $ (0.61) $ (0.50) $ 0.38 $ 2.00
========= ========= ========= =========
Dividends paid per share $ 0.165 $ 0.165 $ 0.495 $ 0.495
========= ========= ========= =========
Weighted average shares outstanding (thousands) 435,220 399,427 433,865 368,827
Dilutive potential common shares (thousands) -- -- 6,815 --
--------- --------- --------- ---------
Adjusted weighted average shares outstanding (thousands) 435,220 399,427 440,680 368,827
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1 U.S. GAAP BASIS
<PAGE> 4
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(United States dollars in millions)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,523 $ 1,533
Receivables, net of allowances 2,600 2,985
Inventories 2,449 2,627
Other current assets 1,576 1,736
-------- --------
TOTAL CURRENT ASSETS 8,148 8,881
Investments 5,727 5,663
Film costs, net of amortization 1,044 1,251
Music catalogs, artists contracts and advances 2,904 3,348
Property, plant and equipment, net 3,050 3,158
Goodwill and other intangible assets 11,644 11,871
Other assets 1,123 839
-------- --------
$ 33,640 $ 35,011
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term debt $ 570 $ 1,053
Payables and accrued liabilities 4,228 4,808
Accrued royalties and participations 2,224 2,285
-------- --------
TOTAL CURRENT LIABILITIES 7,022 8,146
Long-term debt 7,561 7,468
Accrued royalties and participations 538 434
Deferred income taxes 2,619 2,698
Other liabilities 1,401 1,499
Minority interest 1,874 1,878
-------- --------
TOTAL LIABILITIES 21,015 22,123
-------- --------
Shareholders' Equity
Shares without par value 4,730 4,575
Retained earnings 8,660 8,707
Accumulated other comprehensive income (765) (394)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,625 12,888
-------- --------
$ 33,640 $ 35,011
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2 U.S. GAAP BASIS
<PAGE> 5
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(United States dollars in millions)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 252 $ (330)
Adjustments to reconcile income (loss) from continuing operations to
net cash provided:
Depreciation and amortization of assets 528 348
Amortization of goodwill 259 158
Gain on sale of businesses (98) --
Minority interest in income (loss) of subsidiaries 17 (27)
Equity earnings from unconsolidated companies in excess
of dividends received (20) (57)
Deferred income taxes (36) 35
Other 25 36
Changes in assets and liabilities, net of effect of acquisitions
and dispositions:
Receivables, net of allowances 23 979
Inventories (88) (104)
Other current assets 171 (19)
Music catalogs, artists contracts and advances 54 114
Payables and accrued liabilities (327) (337)
Other liabilities (146) (409)
------- -------
362 717
------- -------
Net cash provided by operating activities 614 387
------- -------
INVESTING ACTIVITIES
Acquisition of PolyGram -- (8,607)
Sale of Tropicana -- 3,288
Sale of Champagne Operations 310 --
Sale of Universal Concerts 190 --
Investment in USANi LLC (242) (231)
Capital Expenditures (326) (314)
Other (20) 194
------- -------
Net cash used for investing activities (88) (5,670)
------- -------
FINANCING ACTIVITIES
Dividends paid (215) (181)
Issuance of shares upon exercise of stock options and conversion
of LYONS 152 243
Issuance of Adjustable Conversion-rate Equity Security Units 75 --
Issuance of long-term debt 13 4,845
Repayment of long-term debt (90) (226)
(Decrease) increase in short-term borrowings and current
portion of long-term debt (471) 401
------- -------
Net cash (used for) provided by financing activities (536) 5,082
------- -------
Net cash used for continuing operations (10) (201)
------- -------
Net cash used for discontinued operations -- (3)
------- -------
Net decrease in cash and cash equivalents (10) (204)
Cash and cash equivalents at beginning of period 1,533 1,174
------- -------
Cash and cash equivalents at end of period $ 1,523 $ 970
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3 U.S. GAAP BASIS
<PAGE> 6
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and notes necessary for a presentation of results of operations,
financial position and cash flows in conformity with U.S. generally accepted
accounting principles (GAAP). These statements should be read in conjunction
with the consolidated financial statements and related notes in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (the Form
10-K). In the opinion of the Company, the unaudited interim financial statements
include all adjustments, comprising only normal recurring adjustments, necessary
for a fair presentation of operating results. Results of operations for the
three and nine months are not necessarily indicative of those expected for the
fiscal year.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Pro Forma Financial Information
The unaudited condensed pro forma income statement data presented below assume
the PolyGram acquisition and the sale of Tropicana occurred prior to the 1999
fiscal year. The pro forma information is not necessarily indicative of the
combined results of operations of the Company that would have occurred if the
transactions had occurred prior to the 1999 fiscal year, nor is it necessarily
indicative of future operating results of the Company.
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
2000 1999
------- -------
U. S. dollars in millions, except per share amounts Actual Pro forma
<S> <C> <C>
Revenues $11,988 $11,821
Net income (loss) $ 168 $ (155)
Earnings (loss) per share:
Basic $ 0.39 $ (0.39)
Diluted $ 0.38 $ (0.39)
</TABLE>
4 U.S. GAAP BASIS
<PAGE> 7
3. Significant Transactions
Acquisition of PolyGram
During the second quarter, the Company completed its purchase price study
related to the purchase of PolyGram in order to assess and allocate the purchase
price among tangible and intangible assets acquired and liabilities assumed,
based on fair values at the acquisition date. The final allocation of purchase
price follows:
<TABLE>
<S> <C>
U. S. dollars in millions
Identifiable intangible assets $ 2,774
Goodwill 9,616
Accrual for exit activities (510)
All other, net (1,080)
--------
$ 10,800
========
</TABLE>
In connection with the integration of PolyGram and Seagram, management developed
a formal exit activity plan that was committed to by management and communicated
to employees shortly after the acquisition was consummated. The accrual for exit
activities consisted principally of facility elimination costs, contract
terminations and the severance or relocation of approximately 1,700 employees.
As at March 31, 2000, approximately $230 million of the accrual had been
utilized and approximately 1,665 employees had separated from the Company.
Disposition of Champagne Operations
On July 2, 1999, the Company completed the sale of its Mumm and Perrier-Jouet
Champagne operations for approximately $310 million in cash. The sale price
approximated book value and therefore no gain or loss was recognized. Through
agreements with the purchaser, Seagram has retained global distribution rights
for Mumm and Perrier-Jouet Champagnes for a ten-year period following the sale.
Disposition of Concert Operations
On September 10, 1999, the Company completed the sale of Universal Concerts,
Inc. for proceeds of approximately $190 million. This transaction resulted in a
pre-tax gain of $98 million ($55 million after tax).
4. Restructuring Charge
Management developed and committed to a formal plan that was communicated to
employees to restructure its music and filmed entertainment operations after the
acquisition of PolyGram. This plan resulted in a fiscal 1999 pre-tax
restructuring charge of $405 million. The charge related entirely to the
Company's existing global music and film production, financial, marketing and
distribution operations and includes severance, elimination of duplicate
facilities and labels, termination of artists' and distribution contracts and
costs related to exiting film production arrangements and properties in
development. The major components of the charge were:
<TABLE>
<CAPTION>
Filmed
U. S. dollars in millions Music Entertainment Total
------ ------------- -------
<S> <C> <C> <C>
Severance and other employee-related costs $ 111 $ 15 $ 126
Facilities and labels 124 4 128
Contract termination and other costs 78 73 151
------ ------ -------
$ 313 $ 92 $ 405
====== ====== =======
</TABLE>
5 U.S. GAAP BASIS
<PAGE> 8
The severance and other employee-related costs provided for a reduction of
approximately 1,200 employees worldwide related to facility closures, duplicate
position eliminations and streamlining of operations related to cost reduction
initiatives. The facilities and labels elimination costs provided for domestic
and international lease and label terminations and the write-off of the net book
value of furniture, fixtures and equipment and leasehold improvements for
vacated properties. The costs of contract terminations were comprised primarily
of artists' contracts, distribution contracts, story property commitments and
filmed entertainment term deals. Many restructuring activities are complete or
near completion. Due to favorable settlement of certain contractual and employee
severance obligations, $59 million of the original restructuring accrual was
credited to income in the second quarter. The utilization of the restructuring
charge through March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Original Restructuring Utilized Balance at
U. S. dollars in millions Accrual Credit Cash Non-cash March 31, 2000
-------- ------------- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
Severance and other employee-related costs $ 126 $ (12) $ (71) $ (3) $ 40
Facilities and labels 128 (35) (9) (17) 67
Contract termination and other costs 151 (12) (74) (12) 53
------- ------- ------- ------- ------
$ 405 $ (59) $ (154) $ (32) $ 160
======= ======= ======= ======= ======
</TABLE>
As of March 31, 2000, essentially all of the employees provided for under the
restructuring initiative have separated from the Company. Remaining
restructuring activities relate principally to contractual obligations and
severance payments to be made in future periods. The Company anticipates that
all restructuring activities will be substantially completed by June 30, 2000.
5. Investment in DuPont and USAi
At March 31, 2000, the Company owned 16.4 million shares of the outstanding
common stock of E.I. du Pont de Nemours and Company (DuPont). The Company
accounts for the investment at market value, which was $871 million at March 31,
2000. The underlying historical book value of the DuPont shares is $187 million.
At March 31, 2000, subsequent to a USA Networks, Inc. (USAi) two-for-one stock
split on February 24, 2000, the Company owned 18.2 million shares of the
outstanding common stock of USAi. The investment, which is accounted for at
market value ($410 million at March 31, 2000), has an underlying cost of $211
million. At March 31, 2000, the Company also owned 13.4 million shares of USAi
Class B common stock which is carried at its historical cost of $136 million.
6 U.S. GAAP BASIS
<PAGE> 9
6. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
March 31, June 30,
U. S. dollars in millions 2000 1999
--------- --------
<S> <C> <C>
Inventories
Beverages $ 2,046 $ 2,233
Materials, supplies and other 403 394
------- -------
$ 2,449 $ 2,627
======= =======
Property, plant and equipment, net
Property, plant and equipment, at cost $ 4,546 $ 4,485
Accumulated depreciation (1,496) (1,327)
------- -------
$ 3,050 $ 3,158
======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Excise taxes (included in revenues and cost of revenues) $ 161 $ 183 $ 684 $ 648
----------- ----------- ----------- -----------
</TABLE>
7. Comprehensive Income (Loss)
The components of the Company's total comprehensive income (loss) were as
follows:
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income (loss) $(265) $(199) $ 168 $ 739
Currency translation adjustments (221) (49) (240) 69
Unrealized holding gain (loss) in equity securities, net of tax (211) 67 (131) (128)
----- ----- ----- -----
Total comprehensive income (loss) $(697) $(181) $(203) $ 680
===== ===== ===== =====
</TABLE>
7 U.S. GAAP BASIS
<PAGE> 10
8. Long-Term Debt and Debt Guarantees
Joseph E. Seagram & Sons, Inc. (JES), the Company's principal U.S. spirits and
wine subsidiary, has outstanding debt securities guaranteed by the Company. JES
has issued Liquid Yield Option Notes (LYONs), which are zero coupon notes with
no interest payments due until maturity on March 5, 2006. Each $1,000 face
amount LYON may be converted, at the option of the holder, into 18.44 of the
Company's common shares (196,869 shares at March 31, 2000). The Company has
guaranteed the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 5.79% Senior Notes
due 2001, 6.25% Senior Notes due 2001, 6.4% Senior Notes due 2003, 6.625% Senior
Notes due 2005, 8.375% Debentures due 2007, 7% Debentures due 2008, 6.8% Senior
Notes due 2008, 8.875% Debentures due 2011, 9.65% Debentures due 2018, 7.5%
Senior Debentures due 2018, 9% Debentures due 2021, 7.6% Senior Debentures due
2028, 8% Quarterly Income Debt Securities due 2038 (QUIDS) and 7.5% Adjustable
Conversion-rate Equity Security Units.
Summarized financial information for JES and its subsidiaries is presented
below. Separate financial statements and other disclosures related to JES are
not provided because management has determined that such information does not
provide additional meaningful information to holders of JES debt securities.
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
---- ----- ------ ------
<S> <C> <C> <C> <C>
Revenues $545 $496 $1,836 $1,679
Cost of revenues $335 $304 $1,140 $1,047
Net income (loss) $ 5 $(45) $ 37 $ 13
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------- -------
<S> <C> <C>
Current assets $ 2,043 $ 1,674
Noncurrent assets 18,212 18,602
------- -------
$20,255 $20,276
======= =======
Current liabilities $ 712 $ 1,099
Noncurrent liabilities 10,514 10,014
Shareholders' equity 9,029 9,163
------- -------
$20,255 $20,276
======= =======
</TABLE>
9. Earnings Per Share and Common Shares
At March 31, 2000, 58,345,127 common shares were potentially issuable upon the
conversion of the LYONs, the exercise of employee stock options, conversion of
deferred share units and the early settlement of the contracts to purchase
common shares under the Adjustable Conversion-rate Equity Security Units. Basic
net income per share was based on the following weighted average number of
shares outstanding during the quarters ended March 31, 2000 -- 435,220,427 and
March 31, 1999 -- 399,427,460. In the quarters ended March 31, 2000 and 1999,
average shares of 8,477,179 and 6,534,893, respectively, were not included in
the computation of diluted net income per share because to do so would have been
anti-dilutive.
8 U.S. GAAP BASIS
<PAGE> 11
In the quarter ended March 31, 2000, the Company issued 2,758,213 shares upon
the exercise of employee stock options, deferred compensation and the conversion
of LYONs.
10. Business Segment Information
The Company's four reportable segments are music, filmed entertainment,
recreation and spirits and wine. Each of these reportable segments is a
strategic business unit that offers different products and services that are
marketed through different channels. They are managed separately because of
their unique customers, technology, marketing and distribution requirements. The
Company evaluates its segments and allocates resources to them based on several
performance measures, including earnings before interest, taxes, depreciation
and amortization from consolidated companies (EBITDA). While not a standard
measurement under GAAP, the Company believes EBITDA is an appropriate measure of
operating performance, given the goodwill associated with the Company's
acquisitions. However, EBITDA could be defined differently by other companies
and should be considered in addition to, not as a substitute for, other measures
of financial performance including revenues and operating income. There are no
intersegment revenues; however, corporate headquarters allocates a portion of
its costs to each of its operating segments. The Company does not allocate
interest income, interest expense, income taxes or unusual items to segments.
Business Segment Data
<TABLE>
<CAPTION>
Filmed Spirits
U. S. dollars in millions Music Entertainment Recreation and Wine Corporate Total
-------- ------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 2000
Revenues $ 1,358 $ 877 $ 166 $ 974 $ -- $ 3,375
EBITDA $ 151 $ (8) $ 34 $ 108 $ -- $ 285
Depreciation and amortization (174) (24) (25) (31) (2) (256)
Corporate expenses -- -- -- -- (30) (30)
-------- --------- --------- -------- -------- --------
Operating income (loss) $ (23) $ (32) $ 9 $ 77 $ (32) $ (1)
======== ========= ========= ======== ======== ========
Capital expenditures $ 55 $ 25 $ 24 $ 20 $ 4 $ 128
======== ========= ========= ======== ======== ========
Quarter Ended
March 31, 1999
Revenues $ 1,262 $ 786 $ 188 $ 979 $ -- $ 3,215
EBITDA $ 106 $ (97) $ 22 $ 104 $ -- $ 135
Depreciation and amortization (193) (18) (20) (35) (2) (268)
Corporate expenses -- -- -- -- (30) (30)
-------- --------- --------- -------- -------- --------
Operating income (loss) $ (87) $ (115) $ 2 $ 69 $ (32) $ (163)
======== ========= ========= ======== ======== ========
Capital expenditures $ 15 $ 28 $ 28 $ 27 $ -- $ 98
======== ========= ========= ======== ======== ========
</TABLE>
9 U.S. GAAP BASIS
<PAGE> 12
<TABLE>
<CAPTION>
Filmed Spirits
U. S. dollars in millions Music Entertainment Recreation and Wine Corporate Total
-------- ------------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended
March 31, 2000
Revenues $ 4,806 $ 2,653 $ 648 $ 3,881 $ -- $ 11,988
EBITDA $ 801 $ (66) $ 128 $ 568 $ -- $ 1,431
Depreciation and amortization (536) (74) (75) (95) (7) (787)
Corporate expenses -- -- -- -- (66) (66)
Restructuring credit 40 19 -- -- -- 59
-------- --------- --------- --------- --------- --------
Operating income (loss) $ 305 $ (121) $ 53 $ 473 $ (73) $ 637
======== ========= ========= ========= ========= ========
Capital expenditures $ 144 $ 55 $ 54 $ 69 $ 4 $ 326
======== ========= ========= ========= ========= ========
Nine Months Ended
March 31, 1999
Revenues $ 2,409 $ 2,141 $ 618 $ 3,621 $ -- $ 8,789
EBITDA $ 208 $ (67) $ 92 $ 536 $ -- $ 769
Depreciation and amortization (288) (52) (61) (98) (7) (506)
Corporate expenses -- -- -- -- (61) (61)
Restructuring charge (313) (92) -- -- -- (405)
-------- --------- --------- --------- --------- --------
Operating income (loss) $ (393) $ (211) $ 31 $ 438 $ (68) $ (203)
======== ========= ========= ========= ========= ========
Capital expenditures $ 49 $ 79 $ 92 $ 94 $ -- $ 314
======== ========= ========= ========= ========= ========
</TABLE>
Geographic Data
The following table presents revenues by geographic area for the quarter and
nine months ended March 31, 2000 and 1999. Revenues are classified based upon
the location of the customer. In addition to Canada, the Company's country of
domicile, individual countries are specified if revenues exceed 10 percent of
the total.
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
------ ------- ------- ------
<S> <C> <C> <C> <C>
Revenues
United States $1,617 $1,504 $5,539 $4,297
United Kingdom 356 297 1,336 900
Canada 88 77 330 238
Other countries 1,314 1,337 4,783 3,354
------ ------ ------- ------
$3,375 $3,215 $11,988 $8,789
====== ====== ======= ======
</TABLE>
10 U.S. GAAP BASIS
<PAGE> 13
11. New Accounting Guidance
On July 1, 1999 the Company adopted the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants (AcSEC) Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, which
required that costs of start-up activities be expensed as incurred. The adoption
of SOP 98-5 resulted in an $84 million after-tax charge in the nine months ended
March 31, 2000, which was recorded as a cumulative effect of a change in
accounting principle. The cumulative effect is principally related to costs
associated with the expansion of our recreation operations.
11 U.S. GAAP BASIS
<PAGE> 14
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMPARABILITY
The discussion presented below includes an analysis of total Seagram and
business segment results prepared on a U.S. GAAP basis, which conforms in all
material respects to Canadian GAAP. Supplemental financial data includes
earnings before interest, taxes, depreciation and amortization (EBITDA). Because
of the significant assets and goodwill associated with our acquisitions, we
believe EBITDA is an appropriate measure of operating performance. However, you
should note that EBITDA is not a substitute for operating income, net income,
cash flows and other measures of financial performance as defined by GAAP and
may be defined differently by other companies. Investments in companies that are
not consolidated with the results of Seagram are reported as "equity earnings
from unconsolidated companies". This discussion includes, as supplemental
financial data, information about our share of the results of revenues and
EBITDA related to these investments.
To enhance comparability, financial information for the nine months ended March
31, 1999 is also presented on a pro forma basis, which illustrates the effect of
the acquisition of PolyGram and the disposition of Tropicana as if these
transactions had occurred prior to the 1999 fiscal year. We believe that pro
forma results represent meaningful comparative information for assessing
earnings trends because the pro forma results include comparable operations in
each period presented. The discussion of the recreation and spirits and wine
business segments does not include pro forma comparisons, since the pro forma
adjustments did not impact those segments. The pro forma results are not
necessarily indicative of the combined results that would have occurred had the
events actually occurred prior to our 1999 fiscal year. We believe this
information will help you to better understand our business results.
Management's discussion and analysis of our results of operations and liquidity
should be read in conjunction with the accompanying financial statements, as
well as the consolidated financial statements and related notes in the Company's
Form 10-K.
12
<PAGE> 15
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
Quarter Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999 1999
U.S. dollars in millions, except per share amounts (Actual) (Actual) (Actual) (Actual) (Pro forma)
<S> <C> <C> <C> <C> <C>
REVENUES $ 3,375 $ 3,215 $ 11,988 $ 8,789 $ 11,821
======== ======== ======== ======== ========
OPERATING INCOME (LOSS) (1) (163) 637 (203) 328
Interest, net and other expense 164 184 487 301 526
Gain on sale of businesses -- -- 98 -- --
Provision (benefit) for income taxes 114 (93) 75 (18) 76
Minority interest (3) (10) 17 (27) 3
Equity earnings from unconsolidated companies 11 45 96 129 122
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (265) (199) 252 (330) (155)
Loss from discontinued Tropicana operations, after tax -- -- -- (3) --
Gain on sale of discontinued Tropicana operations, after tax -- -- -- 1,072 --
Cumulative effect of change in accounting principle, after tax -- -- (84) -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (265) $ (199) $ 168 $ 739 $ (155)
======== ======== ======== ======== ========
EARNINGS PER SHARE - BASIC
Income (loss) from continuing operations $ (0.61) $ (0.50) $ 0.58 $ (0.90) $ (0.39)
Loss from discontinued operations -- -- -- (0.01) --
Gain on sale of discontinued operations -- -- -- 2.91 --
Cumulative effect of change in accounting principle -- -- (0.19) -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (0.61) $ (0.50) $ 0.39 $ 2.00 $ (0.39)
======== ======== ======== ======== ========
EARNINGS PER SHARE - DILUTED
Income (loss) from continuing operations $ (0.61) $ (0.50) $ 0.57 $ (0.90) $ (0.39)
Loss from discontinued operations -- -- -- (0.01) --
Gain on sale of discontinued operations -- -- -- 2.91 --
Cumulative effect of change in accounting principle -- -- (0.19) -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (0.61) $ (0.50) $ 0.38 $ 2.00 $ (0.39)
======== ======== ======== ======== ========
Net cash provided by operating activities $ 614 $ 387
Net cash used for investing activities $ (88) $ (5,670)
Net cash (used for) provided by financing activities $ (536) $ 5,082
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 3,375 $ 3,215 $ 11,988 $ 8,789 $ 11,821
Unconsolidated companies 631 514 1,898 1,643 1,643
-------- -------- -------- -------- --------
$ 4,006 $ 3,729 $ 13,886 $ 10,432 $ 13,464
======== ======== ======== ======== ========
EBITDA
Consolidated companies $ 285 $ 135 $ 1,431 $ 769 $ 1,219
Unconsolidated companies 103 105 371 349 349
-------- -------- -------- -------- --------
388 240 1,802 1,118 1,568
Adjustment for unconsolidated companies (103) (105) (371) (349) (349)
Depreciation and amortization (256) (268) (787) (506) (830)
Corporate (30) (30) (66) (61) (61)
Restructuring (charge) credit -- -- 59 (405) --
-------- -------- -------- -------- --------
Operating income (loss) $ (1) $ (163) $ 637 $ (203) $ 328
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 16
ACTUAL
Revenues increased five percent in the quarter and EBITDA from consolidated
companies more than doubled to $285 million. An operating loss of $1 million was
incurred in the quarter compared with an operating loss of $163 million in the
prior year. The improvements in EBITDA and operating income reflect improved
earnings in all business units, led by filmed entertainment. A net loss of $265
million or $0.61 per share (basic and diluted) was incurred in the quarter
compared with a net loss of $199 million or $0.50 per share (basic and diluted)
in the prior year. The net loss was impacted by our provision for income taxes,
which is expected to approximate 30 percent annually, excluding the effect of
non-deductible goodwill associated with our acquisitions.
On a nine-month basis, revenues increased 36 percent and EBITDA from
consolidated companies increased 86 percent, primarily due to our reporting of
full nine-month results of the acquired PolyGram operations in the current year
and improvements in spirits and wine and recreation performance. In addition to
the December 1998 acquisition of PolyGram, there have been several significant
transactions over the past two years that affect the comparability of our
nine-month results. In fiscal 1999, these transactions included the sale of
Tropicana in August 1998 for a $1,072 million after-tax gain and a $405 million
($244 million after tax) restructuring charge associated with the integration of
PolyGram into our existing music and film operations. In the current fiscal
year, significant transactions include the reversal of $59 million ($35 million
after tax) of the prior year restructuring accruals due to the favorable
settlement of certain contractual and employee severance obligations, the sale
of our concert operations for a gain of $98 million ($55 million after tax), the
sale of our Champagne operations for $310 million, an amount which approximated
the book value of those operations, and an $84 million cumulative effect of an
accounting change related to start-up activities. Operating income for the nine
months was $637 million compared with an operating loss of $203 million in the
prior year, which reflected the impact of the PolyGram acquisition as well as
the restructuring activities discussed above. Net income of $168 million or
$0.39 per basic share and $0.38 per diluted share was earned in the nine months
compared to net income of $739 million or $2.00 per share (basic and diluted) in
the prior period. Excluding the transactions discussed above, current year net
income was $162 million or $0.37 per share (basic and diluted) versus a net loss
of $86 million or $0.23 per share (basic and diluted) last year.
PRO FORMA
On a pro forma basis, revenues increased one percent in the nine months, as
increased revenues in the film, recreation and spirits and wine businesses were
partially offset by lower music revenues. Operating income, excluding
restructuring activities, increased 76 percent in the nine months while EBITDA
from consolidated companies increased 17 percent. These increases reflect
improvements in all our business segments.
14
<PAGE> 17
BUSINESS SEGMENT RESULTS
MUSIC
<TABLE>
<CAPTION>
Quarter Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999 1999
U.S. dollars in millions (Actual) (Actual) (Actual) (Actual) (Pro forma)
<S> <C> <C> <C> <C> <C>
REVENUES $ 1,358 $ 1,262 $ 4,806 $ 2,409 $ 4,994
Operating income (loss) before restructuring (charge)
credit $ (23) $ (87) $ 265 $ (80) $ 121
Restructuring (charge) credit -- -- 40 (313) --
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) $ (23) $ (87) $ 305 $ (393) $ 121
======= ======= ======= ======= =======
Equity earnings (losses) from unconsolidated companies $ (4) $ (1) $ (6) $ 4 $ (1)
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 1,358 $ 1,262 $ 4,806 $ 2,409 $ 4,994
Unconsolidated companies 19 7 50 49 49
------- ------- ------- ------- -------
$ 1,377 $ 1,269 $ 4,856 $ 2,458 $ 5,043
======= ======= ======= ======= =======
EBITDA
Consolidated companies $ 151 $ 106 $ 801 $ 208 $ 722
Unconsolidated companies (5) (1) (2) 4 4
------- ------- ------- ------- -------
146 105 799 212 726
Adjustment for unconsolidated companies 5 1 2 (4) (4)
Depreciation and amortization (174) (193) (536) (288) (601)
Restructuring (charge) credit -- -- 40 (313) --
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) $ (23) $ (87) $ 305 $ (393) $ 121
======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED OPERATIONS
Actual - Revenues increased eight percent in the quarter and EBITDA increased 42
percent. Excluding the impact of unfavorable foreign exchange, revenues and
EBITDA would have increased 11 and 51 percent, respectively. An operating loss
of $23 million was incurred in the quarter compared with an operating loss of
$87 million in the prior year. The results were primarily driven by strong sales
of current releases and cost savings achieved from the integration of PolyGram,
partially offset by investments in our electronic business initiatives. For the
nine-month period, significant increases in revenues, EBITDA and operating
income reflect the acquisition of PolyGram. Of the $4,806 million total
year-to-date music revenues, 42 percent were generated in North America, the
European and African markets accounted for 42 percent, Asia Pacific contributed
12 percent and Latin America generated the remaining four percent. We continue
to have a strong presence in key markets, including the United States, United
Kingdom, France, Germany and Brazil, where we hold strong chart positions. In
the nine-month period, over 64 percent of product sales were from new releases.
Major album sales in the nine-month period included those by Shania Twain, Limp
Bizkit, Blink 182, Sting, Enrique Iglesias, Smash Mouth, the soundtrack from the
Universal feature film Notting Hill and Boyzone, among others. In the quarter,
Dr. Dre, Aqua, Sisqo and Eiffel 65 were also among the top sellers.
An important aspect of our music business relates to electronic business
initiatives as we believe that emerging technologies will be strategically
important to the future of this business. Evolving technology allows consumers
to experience music in new electronic mediums and formats. Through a variety of
strategic alliances and independent initiatives, we continue to invest resources
in the technology and electronic commerce areas. Our investments include
internal infrastructure, hardware and software that will allow the music
business to be conducted over the internet, as well as investments in Jimmy and
Doug's Farm Club, GetMusic, ARTISTdirect, InterTrust Technologies, ReplayTV,
eritmo.com and others.
Pro forma - Revenues declined four percent in the nine-month period primarily
due to the impact of unfavorable foreign exchange, label consolidation and our
effort to continually refine our artist roster. North American revenues
increased 11 percent, reflecting higher volume and average prices. International
revenues declined 12 percent. Excluding the impact of
15
<PAGE> 18
foreign exchange, international revenues would have declined seven percent.
Operating income, excluding restructuring activities, more than doubled in the
nine months and EBITDA increased 11 percent. Excluding the impact of foreign
exchange, EBITDA would have increased 18 percent. These improvements reflect
higher volumes and cost savings in North America and strong performances in the
United Kingdom, Germany and other international territories, combined with cost
savings. Cost savings are slightly exceeding our anticipated program as we
complete the integration of PolyGram, however, are partially offset by
investments in our electronic business initiatives.
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies was a loss of $4 million in
the quarter and a loss of $6 million in the nine months as income of $3 million
from concert operations sold in September 1999 was offset by losses from
electronic business activities.
FILMED ENTERTAINMENT
<TABLE>
<CAPTION>
Quarter Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999 1999
U.S. dollars in millions (Actual) (Actual) (Actual) (Actual) (Pro forma)
<S> <C> <C> <C> <C> <C>
REVENUES $ 877 $ 786 $ 2,653 $ 2,141 $ 2,588
Operating loss before restructuring (charge) credit $ (32) $ (115) $ (140) $ (119) $ (194)
Restructuring (charge) credit -- -- 19 (92) --
------- ------- ------- ------- -------
OPERATING LOSS $ (32) $ (115) $ (121) $ (211) $ (194)
======= ======= ======= ======= =======
Equity earnings from unconsolidated companies $ 39 $ 56 $ 153 $ 127 $ 125
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 877 $ 786 $ 2,653 $ 2,141 $ 2,588
Unconsolidated companies 483 416 1,393 1,287 1,287
------- ------- ------- ------- -------
$ 1,360 $ 1,202 $ 4,046 $ 3,428 $ 3,875
======= ======= ======= ======= =======
EBITDA
Consolidated companies $ (8) $ (97) $ (66) $ (67) $ (131)
Unconsolidated companies 95 93 304 278 278
------- ------- ------- ------- -------
87 (4) 238 211 147
Adjustment for unconsolidated companies (95) (93) (304) (278) (278)
Depreciation and amortization (24) (18) (74) (52) (63)
Restructuring (charge) credit -- -- 19 (92) --
------- ------- ------- ------- -------
OPERATING LOSS $ (32) $ (115) $ (121) $ (211) $ (194)
======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED OPERATIONS
Actual - The performance of our filmed entertainment business continued to
improve in the third quarter. Revenues increased 12 percent, EBITDA improved $89
million and the operating loss of $32 million was an $83 million improvement
over the prior year. These results primarily reflect the improved motion picture
performance versus a disappointing prior year. Improvements were due, in part,
to the theatrical success of The Bone Collector, The Green Mile and Best Man.
Strong DVD and video sales of The Mummy, Notting Hill, American Pie and The
Story Of Us, combined with the development of programs designed to manage
production, marketing, participation and overhead and development costs also
contributed to filmed entertainment results. In the nine-month period, operating
income, excluding restructuring activities, declined from a loss of $119 million
to a loss of $140 million, while EBITDA was essentially flat. Included in EBITDA
and operating income are the costs of our continued investment in the
international television network business, where the creation of new digital
delivery technologies in many markets has created significant growth
opportunities. International television networks not only provide a dual revenue
stream from advertising and subscription but also provide a captive outlet for
our extensive film and television libraries and new content.
16
<PAGE> 19
Pro forma - Pro forma filmed entertainment includes the results of PolyGram
filmed entertainment (PFE). Revenues increased three percent in the nine months
while operating income, excluding restructuring activities, and EBITDA improved
by $54 million and $65 million, respectively. The current year results compare
favorably to the prior year which included a $64 million loss largely due to the
start-up of PFE domestic film distribution operations.
UNCONSOLIDATED OPERATIONS
Unconsolidated companies principally include USANi LLC, Loews Cineplex
Entertainment Corporation, United Cinemas International Multiplex B.V. and
Cinema International Corporation. Year-to-date results reflect improved
operating results at USANi LLC.
RECREATION
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U.S. dollars in millions 2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $ 166 $ 188 $ 648 $ 618
OPERATING INCOME $ 9 $ 2 $ 53 $ 31
Equity losses from unconsolidated companies $ (24) $ (9) $ (53) $ (2)
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 166 $ 188 $ 648 $ 618
Unconsolidated companies 96 56 332 192
----- ----- ----- -----
$ 262 $ 244 $ 980 $ 810
===== ===== ===== =====
EBITDA
Consolidated companies $ 34 $ 22 $ 128 $ 92
Unconsolidated companies 13 13 63 62
----- ----- ----- -----
47 35 191 154
Adjustment for unconsolidated companies (13) (13) (63) (62)
Depreciation and amortization (25) (20) (75) (61)
----- ----- ----- -----
OPERATING INCOME $ 9 $ 2 $ 53 $ 31
===== ===== ===== =====
</TABLE>
CONSOLIDATED OPERATIONS
During the quarter, revenues decreased 12 percent as a result of the mix of
interactive game product sales and lower attendance at Universal City Hollywood
due to the timing of spring holiday periods. EBITDA increased 55 percent and
operating income was $9 million compared with $2 million in the prior year, due
to increased management fees generated from the expansion of Universal Orlando
and improved margins on interactive game sales. On a year-to-date basis,
revenues increased five percent, EBITDA rose 39 percent and operating income
increased over 70 percent. Revenue growth was due to increased management fees
at Universal Orlando, increased retail sales at Spencer Gifts, and a full nine
months of Wet'n Wild results, which was purchased in September 1998. In
addition, operating income and EBITDA increased as the result of improved cost
management at Universal City Hollywood.
UNCONSOLIDATED OPERATIONS
Unconsolidated companies principally include Universal Orlando, Universal
Studios Japan, Universal Studios Port Aventura and SEGA GameWorks. Equity in
earnings from unconsolidated companies declined from a loss of $9 million in the
third quarter of last year to a loss of $24 million this year and on a
nine-month basis from a loss of $2 million last year to a loss of $53 million
this year. These declines are partly due to increased depreciation and interest
expense at Universal Orlando since the opening of Islands of Adventure and the
pre-opening development costs at Universal Studios Japan. In addition, the prior
year nine-month comparatives included a gain recognized by Sega GameWorks on the
sale of its game sales operation to Sega in the first quarter. Revenues from
unconsolidated companies increased 71 percent in the quarter and 73 percent in
the nine months reflecting the opening of Islands of Adventure, Hard Rock Live,
CityWalk and
17
<PAGE> 20
the Portofino Bay Hotel (a Loews hotel) at Universal Orlando. EBITDA from
unconsolidated companies was flat in the quarter and up two percent in the nine
months as increased earnings at Universal Orlando were offset by pre-opening
development costs at Universal Studios Japan. At Universal Orlando, EBITDA
increased 18 percent in the quarter and 27 percent in the nine months reflecting
a significant increase in attendance since the opening of the new attractions
discussed above, partially offset by the continued investment in marketing and
other non-recurring costs associated with the expansion.
SPIRITS AND WINE
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U.S. dollars in millions 2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $ 974 $ 979 $ 3,881 $ 3,621
OPERATING INCOME $ 77 $ 69 $ 473 $ 438
Equity earnings (losses) from unconsolidated companies $ -- $ (1) $ 2 $ --
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 974 $ 979 $ 3,881 $ 3,621
Unconsolidated companies 33 35 123 115
------- ------- ------- -------
$ 1,007 $ 1,014 $ 4,004 $ 3,736
======= ======= ======= =======
EBITDA
Consolidated companies $ 108 $ 104 $ 568 $ 536
Unconsolidated companies -- -- 6 5
------- ------- ------- -------
108 104 574 541
Adjustment for unconsolidated companies -- -- (6) (5)
Depreciation and amortization (31) (35) (95) (98)
------- ------- ------- -------
OPERATING INCOME $ 77 $ 69 $ 473 $ 438
======= ======= ======= =======
</TABLE>
CONSOLIDATED OPERATIONS
During the quarter, spirits and wine revenues decreased one percent while EBITDA
and operating income increased four and 12 percent, respectively. On a
nine-month basis, revenues increased seven percent, operating income rose eight
percent and EBITDA grew by six percent. Adjusting for the sale of the Champagne
production operations, operating income increased 17 percent in the quarter and
15 percent in the nine months, while EBITDA increased eight percent in the
quarter and 12 percent in the nine months. The improved year-to-date results
were driven by continued momentum in the global spirits and wine business and
volume growth in North America, Europe and Asia Pacific. Of the $3,881 million
total year-to-date spirits and wine revenues, 45 percent were generated in North
America, the European and African markets accounted for 33 percent, Asia Pacific
contributed 14 percent and Latin America generated the remaining eight percent.
Total spirits and wine case volumes, including unconsolidated companies,
increased two percent in the quarter and eight percent in the nine months. The
year-to-date increase is driven by growth in Crown Royal, Captain Morgan,
ABSOLUT VODKA (which is owned by V&S Vin & Sprit AB), Mumm Sekt and Royal
Salute.
In the nine-month period, cost of goods sold as a percentage of revenues
increased to 54.7 percent from 53.6 percent in the prior year period. Selling,
general and administrative expenses as a percentage of revenues decreased to
33.1 percent from 34.3 percent partially due to the timing and reduction of
overhead spending. At constant foreign exchange rates, global marketing expense
increased in excess of 20 percent in the nine months in order to sustain the
momentum established in our core brands and to support the millennium trade
activity earlier in the year. Brand equity build increased in excess of 21
percent at constant exchange rates as we continued to invest for future growth
by supporting our brands in key markets.
18
<PAGE> 21
UNCONSOLIDATED OPERATIONS
In the current fiscal year there is only one spirits and wine unconsolidated
company, Kirin-Seagram Limited in Japan. In fiscal 1999, the unconsolidated
companies also included Seagram (Thailand) Limited for nine months to March 1999
at which time we increased our investment in Thailand and began to consolidate
that affiliate. The equity in earnings of unconsolidated companies increased $1
million in the quarter and $2 million in the nine months. Revenues from
unconsolidated companies were down $2 million in the quarter but increased seven
percent in the nine months. EBITDA was flat in the quarter and increased 20
percent in the nine months. The year-on-year variances are primarily due to the
entities that are included in unconsolidated companies.
OTHER INCOME, EXPENSES AND TAXES
Corporate expenses were flat in the quarter and increased eight percent in the
nine months. Interest, net and other in the quarter included net interest
expense of $170 million, offset by $6 million of dividend income from DuPont.
The decrease of $20 million from the prior year is primarily due to lower
average debt outstanding, reflecting proceeds from asset sales and the June 1999
equity offering. In the nine months, interest, net and other increased 62
percent to $487 million reflecting the increased interest costs associated with
funding the PolyGram acquisition. Our quarterly tax provision is calculated
based on an annual effective tax rate, excluding the impact of certain
transactions that occurred during the nine month period. Our effective annual
rate is expected to approximate 30 percent, excluding the impact of
non-deductible goodwill associated with our acquisitions.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
During the first quarter we recorded an $84 million after-tax charge related to
the cumulative effect of a change in accounting principle. The change relates to
the treatment of costs related to start-up activities, which now must be
expensed as incurred. The cumulative effect is principally related to costs
associated with the expansion of our recreation operations. Beginning July 1,
1999, start-up costs are expensed as incurred and are not anticipated to have a
significant impact on our financial results.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
Financial Position - Current assets of $8.1 billion at March 31, 2000 were $733
million lower than at June 30, 1999, primarily due to the collection of
receivables and a reduction in inventories. Current liabilities decreased $1.1
billion to $7.0 billion at March 31, 2000, primarily due to a reduction in
short-term borrowings, payables and accrued liabilities. Shareholders' equity
was $12.6 billion at March 31, 2000, $263 million below June 30, 1999. Our total
long- and short-term debt, net of cash and short-term investments decreased to
$6.6 billion at March 31, 2000 from $7.0 billion at June 30, 1999. Our ratio of
net debt to total capitalization (including minority interest) declined one
percent to 31 percent.
Cash Flows from Operating Activities - Net cash provided by operating activities
totaled $614 million in the nine months, an increase of $227 million from the
prior year. Contributing to this favorable variance were lower working capital
requirements and an increase in income from continuing operations.
Cash Flows from Investing Activities - Net cash used for investing activities
was $88 million in the nine-month period. The $310 million proceeds from the
sale of the Champagne operations together with $190 million proceeds from the
sale of Universal Concerts, Inc., were more than offset by an additional $242
million investment in USANi LLC, capital expenditures of $326 million and other
investments of $20 million. The capital expenditures by business segment were:
Music $144 million, Filmed Entertainment $55 million, Recreation $54 million,
Spirits and Wine $69 million and Corporate $4 million. In the prior year period,
the net cash used for investing activities was $5.7 billion primarily comprised
of $8.6 billion for the cash portion of the acquisition of PolyGram, an
additional investment in USANi LLC of $231 million and capital expenditures of
$314 million, partially offset by $3.3 billion pre-tax proceeds from the
Tropicana disposition. The capital expenditures by business segment were: Music
$49 million, Filmed Entertainment $79 million, Recreation $92 million and
Spirits and Wine $94 million.
19
<PAGE> 22
Cash Flows from Financing Activities - Financing activities in the nine months
used $536 million. A $471 million decrease in short-term borrowings, a $90
million repayment of long-term debt and dividend payments of $215 million were
partially offset by a $75 million supplemental issuance of Adjustable
Conversion-rate Equity Security Units and a $152 million issuance of shares upon
exercise of stock options and conversion of LYONs. In the prior year nine-month
period, financing activities provided $5.1 billion primarily due to a $4.8
billion issuance of long-term debt to finance the PolyGram acquisition.
Working Capital - Our working capital position is reinforced by available credit
facilities of approximately $7.6 billion. These facilities are used to support
our commercial paper borrowings and are available for general corporate
purposes. We believe our access to external capital resources together with
internally generated liquidity will be sufficient to satisfy existing
commitments and plans, and to provide adequate financial flexibility.
International Exchange - We employ a variance/covariance approach in our
calculation of Value at Risk (VaR), which measures the potential losses in fair
value or earnings that could arise from changes in market conditions, using a 95
percent confidence level and assuming a one-day holding period. The VaR, which
is the potential loss in fair value, attributable to those interest rate
sensitive exposures associated with our exposure to interest rates at March 31,
2000 was $36 million. This exposure is primarily related to long-term debt with
fixed interest rates. The VaR, which is the potential loss in earnings
associated with our exposure to foreign exchange rates, primarily to hedge cash
flow exposures denominated in foreign currencies, was $10 million at March 31,
2000. These exposures include intercompany trade accounts, service fees,
intercompany loans and third-party debt. We are subject to other foreign
exchange market risk exposure as a result of non-financial instrument
anticipated foreign currency cash flows which are difficult to reasonably
predict, and have therefore not been included in the Company's VaR calculation.
YEAR 2000 ISSUE
During the quarter, we completed our efforts to minimize the risk of business
disruption associated with the Year 2000 (Y2K) issue. Our overall plan to
address the Y2K issue is described more fully in our Form 10-K as supplemented
by the Forms 10-Q for the fiscal quarters ended September 30, 1999 and December
31, 1999. To date, we have not experienced any material business disruptions or
system failures as a result of Y2K issues, nor are we aware of any Y2K issues
affecting our critical third party vendors and customers that could have a
significant impact on our business or operations. However, Y2K compliance has
many elements and potential consequences, some of which may not be foreseeable
or may be realized in future periods. Consequently, there can be no assurance
that unforeseen circumstances may not arise, or that we will not in the future
identify equipment, systems or third parties which are not Y2K compliant.
The total costs related to our Y2K remediation efforts approximate $65 million,
substantially all of which have been incurred as of March 31, 2000. These costs
do not include the costs of redeployed internal resources or the costs of
internally developed software or hardware which is being replaced or developed
in the normal course of business. All costs associated with our plan are funded
through operations.
Statements concerning Y2K issues that contain more than historical information
may be considered forward-looking statements, which are subject to risks and
uncertainties. Actual results may differ materially from those expressed in the
forward-looking statements, and our Y2K discussion should be read in conjunction
with our statement on forward-looking statements which appears below.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains statements that are "forward-looking statements", in that
they include statements regarding the intent, belief or current expectations of
our management with respect to our future operating performance. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. All statements that
express forecasts, expectations and projections with respect to future matters,
including the launching or prospective development of new business initiatives
and products, anticipated music or motion picture
20
<PAGE> 23
releases, internet or theme park projects, and Y2K remediation efforts and
anticipated cost savings or synergies are forward-looking statements within the
meaning of the Act. Such forward-looking statements are not guarantees of future
performance. Actual results may differ materially from our forward-looking
statements as a result of certain risks and uncertainties, many of which are
outside of our control, including but not limited to:
- - Changes in global and localized economic and political conditions which
may affect attendance and spending at our theme parks, purchases of our
consumer products and the performance of our filmed entertainment
operations.
- - Changes in financial and equity markets, including significant interest
rate and foreign currency rate fluctuations, which may affect our access
to, or increase the cost of financing for our operations and
investments.
- - Increased competitive product and pricing pressures and unanticipated
actions by competitors that could impact our market share, increase
expenses and hinder our growth potential.
- - Changes in consumer preferences and tastes, which may affect all our
business segments.
- - Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at our
theme parks in California, Florida and Spain.
- - Legal and regulatory developments, including changes in accounting
standards, taxation requirements, such as the impact of excise tax
increases with respect to the spirits and wine business, and
environmental laws.
- - Technological developments that may affect the distribution of our
products or create new risks to our ability to protect our intellectual
property rights.
- - The uncertainties of litigation and other risks and uncertainties
detailed from time to time in our filings with the Securities and
Exchange Commission.
21
<PAGE> 24
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Federal Trade Commission (FTC) investigation into the
minimum advertised price (MAP) policy of Universal Music & Video Distribution
Corp. (formerly Universal Music & Video Distribution, Inc.) (UMVD) and PolyGram
Group Distribution, Inc. (PGDI) described on page 12 of the Form 10-K. On May 1,
2000, UMVD (PGDI has merged into UMVD) and UMG Recordings, Inc. (UMGR) (which
owns substantially all of the Company's record labels) signed a Consent
Agreement with the staff of the FTC that is subject to final approval by the FTC
Commissioners. If accepted by the FTC Commissioners, the Company anticipates
that the Consent Agreement will resolve the FTC's investigation of the MAP
policy. Among other things, UMVD and UMGR have agreed that (i) for seven years
they shall not make the receipt of any cooperative advertising funds for their
prerecorded music product contingent upon the price or price level at which such
product is advertised or promoted, (ii) for twenty years they shall not make the
receipt of any cooperative advertising funds for their prerecorded music product
contingent upon the price or price level at which such product is advertised or
promoted where the dealer does not seek any contribution from UMVD or UMGR for
the cost of the advertisement or promotion, and (iii) for five years they shall
not announce resale or minimum advertised prices of their prerecorded music
product and unilaterally terminate those who fail to comply because of such
failure.
Reference is made to the Digital Distribution, Chandu Dani and Third Street
matters described on page 12 of the Form 10-K. The trial date of February 15,
2000 had been vacated and no new trial date has been set.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed with this Form 10-Q is on page 24.
(b) Current Reports on Form 8-K
None
22
<PAGE> 25
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, thereunto duly authorized.
THE SEAGRAM COMPANY LTD.
------------------------
(Registrant)
By: /s/ Frank Mergenthaler
----------------------
Frank Mergenthaler
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
Dated: May 12, 2000
23
<PAGE> 26
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Agreement dated March 14, 2000 between Joseph E. Seagram & Sons, Inc.
and John D. Borgia.
10.2 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and Kevin Conway.
10.3 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and Daniel Paladino.
10.4 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and Tod Hullin.
10.5 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and Frank Mergenthaler.
10.6 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and Michael Hallows.
10.7 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and John Borgia.
10.8 Agreement effective March 17, 2000 between Joseph E. Seagram & Sons,
Inc. and John Preston.
12(a) Computation of Ratio of Earnings to Fixed Charges
- The Seagram Company Ltd.
12(b) Computation of Ratio of Earnings to Fixed Charges
- Joseph E. Seagram & Sons, Inc.
27 Financial Data Schedule.
24
<PAGE> 1
JOSEPH E. SEAGRAM & SONS, INC.
EXECUTIVE OFFICES
375 PARK AVENUE, NEW YORK, NEW YORK 10152
March 14, 2000
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. John D. Borgia
41 Bayberry Lane
Westport, CT 06880
Dear John:
This letter (the "Agreement") sets forth the terms of the agreement
between you and us with respect to your continued employment as Executive Vice
President - Human Resources of The Seagram Company Ltd. ("SCL") and of Joseph E.
Seagram & Sons, Inc. ("Seagram" and, together with SCL, the "Company").
1. Term of Employment.
a. Employment Term. The Company agrees to employ you, and you
agree to serve the Company, for the three and one-half year
period commencing on January 1, 2000 and ending on June 30,
2003 (the "Employment Term"), on the terms and subject to the
conditions set forth in this Agreement.
b. Prior Agreements. This Agreement supercedes all prior
agreements and understandings (including verbal agreements)
between you and the Company and/or its affiliates regarding
the terms and conditions of your employment with the Company
and/or its affiliates, including, without limitation, the
letter between you and Seagram dated April 27, 1995.
2. Duties. You shall serve as Executive Vice President - Human
Resources of the Company. In such position, you shall be the most senior
officer of the Company with respect to human resources, and you shall report
directly to the Chief Executive Officer of SCL.
3. Annual Base Salary. The Company shall pay you a base salary at
the annual rates set forth below (the "Annual Base Salary"). Your salary shall
be payable in regular installments
<PAGE> 2
Mr. John D. Borgia -2- March 14, 2000
in accordance with the Company's usual payroll practices for senior executives.
The annual rates shall be:
a. $550,000 for the period beginning January 1, 2000 and ending
December 31, 2000;
b. $575,000 for the period beginning January 1, 2001 and ending
December 31, 2001;
c. $600,000 for the period beginning January 1, 2002 and ending
December 31, 2002; and
d. $625,000 for the period beginning January 1, 2003 and ending
June 30, 2003 (i.e., $312,500 for that period).
4. Annual Target Bonus. With respect to each fiscal year of the Company
that ends on or prior to June 30, 2003, you also are eligible to earn an annual
management incentive award determined by the Human Resources Committee of the
Board of Directors of SCL (the "SCL Board") in its sole discretion. Your annual
target bonus will be 90% of the rate of Annual Base Salary to which you are
entitled at the end of the relevant period (the "Annual Target Bonus").
5. Equity-Based Awards.
a. You have received, as approved by the Human Resources
Committee of the SCL Board, a one-time grant of 225,000
options pursuant to the 1996 Stock Incentive Plan at an
exercise price equal to the fair market value of an SCL
common share on the date of grant. One-third of these
options will vest and become exercisable upon the first
anniversary of the date of grant, another third of these
options will vest and become exercisable upon the second
anniversary of the date of grant, and the remaining third of
these options will vest and become exercisable upon the
third anniversary of the date of grant.
b. You will also be considered for an annual grant under the
1996 Stock Incentive Plan (or its successor) in 2003, at the
sole discretion of the Human Resources Committee of the SCL
Board.
6. Pension. You shall participate in Seagram's pension, retirement and
similar plans applicable to senior executives generally. After termination of
your employment, but not prior to age 60, (or, if you elect, at age 55 but
subject to a 3% per year reduction from age 60), the total annual pension
payable to you for life shall not be less than the product of $30,000 times the
number of years (or portion thereof) of your continuous service with the
Company, up to the maximum benefit
<PAGE> 3
Mr. John D. Borgia -3- March 14, 2000
that would be payable to you under the terms of the Benefit Equalization Plan or
replacement plans at age 60. Following your death, your surviving spouse (as
defined in the Seagram Retirement Account Plan or replacement plan), if any,
shall be paid an annual pension for life that is equal to two-thirds of the
annual pension you were receiving immediately prior to your death.
7. Retiree Medical Coverage. If you remain employed throughout
the Employment Term, after you have reached age 55 you will be eligible for
retiree medical coverage in accordance with the Company's then-existing retiree
medical program.
8. Other Benefits. You also will be eligible to participate in our
Senior Executive Compensation and Benefits Program of which the management
incentive award and stock options referenced above are a part. Except as
otherwise provided in this Agreement, the terms of the plans in that Program
shall govern any awards that you may be eligible to earn. The Program also
includes medical benefits; accident, life insurance and disability salary
continuation; flexible perquisites; matching contributions and related benefits.
9. Termination of Employment. This Section 9 shall exclusively
govern your right to compensation and benefits in the event your employment with
the Company terminates prior to the expiration of the Employment Term. Your
employment hereunder may be terminated by either party at any time and for any
reason, provided that you shall be required to give the Company at least 30
days' advance written notice of any resignation of employment.
a. By the Company for Cause or By Your Resignation. If your
employment is terminated by the Company for Cause or by your
resignation, you shall be entitled to receive (1) the Annual
Base Salary earned through the date of termination, and (2)
any annual bonus earned but unpaid for any fiscal year ending
prior to the date of termination. You shall be paid the
above amounts in the form of a single, lump sum cash payment
as soon as administratively practicable following the date of
termination. You also shall be entitled to receive such
other Company benefits or awards to which you are entitled
under the terms of the relevant plan, policy or arrangement,
other than any severance plan, policy or arrangement.
b. By the Company Without Cause. In the event your employment is
terminated by the Company without Cause, you shall be
entitled to receive (1) your then remaining unpaid Annual
Base Salary pursuant to Subsections 3.a. through 3.d. of this
Agreement through June 30, 2003, (2) any annual bonus earned
but unpaid for any fiscal year ending prior to the date of
termination, and (3) your Annual Target Bonus for each fiscal
year (commencing with the fiscal year in which your
termination occurs) through June 30, 2003, as calculated
pursuant
<PAGE> 4
Mr. John D. Borgia -4- March 14, 2000
to Section 4. You shall be paid the above amounts in the form
of a single, lump sum cash payment within 15 business days
following the date of termination. In addition, (1) all
options to purchase SCL shares then held by you shall become
immediately exercisable, but will, in all other respects,
remain subject to the terms and conditions of the applicable
stock option plan, (2) you shall be entitled to continuation
of medical, dental, life and disability coverages in effect
from time to time for senior executive officers of SCL and
its successors through June 30, 2003 or, if earlier, the date
you become employed by a subsequent employer, and (3) you
shall be entitled to receive such other Company benefits or
awards to which you are entitled under the terms of the
relevant plan, policy or arrangement, other than any
severance plan, policy or arrangement. Finally, upon your
attainment of age 55 you shall be eligible for retiree
medical coverage pursuant to Section 7.
c. Due to Disability or Death. In the event your employment is
terminated due to your disability or death, you or your
estate, as applicable, shall be entitled to receive (1) the
Annual Base Salary earned through the date of termination,
(2) any annual bonus earned but unpaid for any fiscal year
ending prior to the date of termination, and (3) a pro-rated
Annual Target Bonus for the fiscal year of termination. The
above amounts shall be paid in the form of a single, lump sum
cash payment as soon as administratively practicable
following the date of termination. In addition, your
properly designated beneficiary shall be entitled to receive
such other Company benefits or awards to which such
beneficiary is entitled as of the date of termination under
the terms of the relevant plan, policy or arrangement, other
than any severance plan, policy or arrangement. To the
extent not payable pursuant to the foregoing sentence, your
surviving spouse (as defined in Section 6 of this Agreement)
shall be entitled to receive the two-thirds pension benefit
described in Section 6 of this Agreement. For purposes of
this subsection, "disability" shall have the same meaning as
provided under the SCL Senior Executive Compensation and
Benefits Program.
d. Definition of Cause. For purposes of this Agreement, "Cause"
shall mean (1) your gross misconduct or a willful breach of a
substantial and material obligation under this Agreement; (2)
your intentional and material failure to comply with the
Policies and Procedures for Worldwide Business Conduct of SCL
and Affiliates, and the Company's discrimination and sexual
harassment policies, as in effect from time to time; or (3)
your conviction of a felony or crime of moral turpitude.
<PAGE> 5
Mr. John D. Borgia -5- March 14, 2000
e. Lump Sum. Any lump sum payments required to be made to you
pursuant to Section 9 of this Agreement will be discounted to
present value from the time at which such amounts would have
been paid absent any accelerated payment at an annual
discount rate for the relevant periods equal to the "mid-term
applicable Federal rate" (within the meaning of Section
1274(d) of the Internal Revenue Code of 1986, as amended),
compounded annually, in effect on the date of termination.
10. Miscellaneous Provisions.
a. Confidentiality. You will not at any time (whether during or
after the period of your employment with the Company)
disclose or use for your own benefit or purposes or the
benefit or purposes of any person, entity or association
other than the Company or its affiliates, any trade secret,
information, data or other confidential information relating
to the business and affairs of the Company or any of its
affiliates, generally, or information that is not unique to
the Company or its affiliates, or information that is
generally known in the industry or the public other than as a
result of your breach of this provision. You agree that upon
the termination of your employment with the Company for any
reason, you will return to the Company immediately all
memoranda, books, papers, plans, information, letters and
other data, all copies thereof or therefrom, in any way
relating to the business of the Company and its affiliates,
except that you may retain personal notes, notebooks and
diaries that do not contain confidential information of the
type described above. You further agree that you will not
retain or use for your own account at any time any trade
names, trademark or other proprietary business designation
used or owned in connection with the business of the Company
or its affiliates.
b. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York, without regard to conflicts of laws principles thereof.
c. Entire Agreement/Amendments. This Agreement contains the
entire understanding of the parties with respect to the
employment of you by the Company. There are no restrictions,
agreements, promises, warranties, covenants or undertakings
between the parties with respect to such employment, other
than those expressly set forth herein. This Agreement may not
be altered, modified or amended except by written instrument
signed by the parties hereto.
<PAGE> 6
Mr. John D. Borgia -6- March 14, 2000
d. No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall
not be considered a waiver of such party's rights or deprive
such party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
e. Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid,
illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
f. No Mitigation. If the Company terminates your employment for
any reason, or if you resign, you will have no duty to
attempt to mitigate your damages by seeking alternative
employment, the Company will not be entitled to reduce the
amount of any compensation or benefits payable to you under
this Agreement by any amounts received by you in connection
with such alternative employment, and you will not be
required to pay the Company any amounts that you may receive
from any such alternative employment or otherwise. The
Company's obligations to you under this Agreement shall not
be subject to any offset or defense.
g. Successors; Binding Agreement. This Agreement shall insure
to the benefit of and be binding upon personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
h. Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change
of address shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
<PAGE> 7
Mr. John D. Borgia -7- March 14, 2000
If to you, at the address indicated herein.
i. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such federal,
state and local taxes as may be required to be
withheld pursuant to any applicable law or
regulation.
j. 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.
Sincerely,
/s/ Daniel R. Paladino
----------------------
Daniel R. Paladino
Accepted and agreed to as of the date indicated above, this the 15 day of
March , 2000.
/s/ John Borgia
- ---------------
John D. Borgia
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram &
Sons, Inc. and Kevin Conway (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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.
If Executive's employment with the Company is terminated at
any time within the two years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) two times Executive's Base Salary in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Base
Salary, or any failure to increase the Base
Salary pursuant to an agreement between
Executive and the Company has occurred,
then the Base Salary on either date shall be
as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(2) two times Executive's Target Bonus in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Target
Bonus, or any failure to increase the Target
Bonus pursuant to an agreement between
Executive and the Company has occurred, then
the Target Bonus on either date shall be as
in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options are
converted or options granted in substitution for such
unvested options) shall become fully exercisable, and
shall remain exercisable for the period applicable to
vested options under the applicable option agreement.
c. Continuation of Benefits. Until the second
anniversary of the Termination Date, the Company
shall, at its expense, provide Executive and his or
her spouse and dependents with medical, life
insurance and disability
<PAGE> 3
3
coverages at the level provided to Executive
immediately prior to the Change of Control; provided,
however, that if Executive becomes employed by a new
employer, continuing coverage from the Company will
become secondary to any coverage afforded by the new
employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen
business days after the Termination Date, the Company
shall pay Executive the 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 and
reimbursement for any unreimbursed expenses properly
incurred by Executive in accordance with Company
policies prior to the Termination Date. Executive
shall also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit plans,
policies or programs of the Company, other than any
Company severance policy (payments and benefits in
this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes
of eligibility for retirement, for early commencement
or actuarial subsidies under any Company pension,
medical reimbursement or life insurance plan (or any
such alternative contractual arrangement that the
Executive may have with the Company), Executive will
be credited with an additional two years of service
and age beyond that accrued as of the Termination
Date; provided that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the two-year period
following the Termination Date (or, if earlier, the
date Executive first obtains full-time employment
after the Termination Date), the Company shall
reimburse all reasonable expenses incurred by
Executive for professional outplacement services by
qualified consultants selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. Gross-Up.
a. Subject to Section 5(b) below, 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.
b. Notwithstanding the provisions of Section 5(a), if it
shall be determined that Executive is entitled to a
Gross-Up Payment, but the Payments do not exceed 105%
of the greatest amount (the "Reduced Amount") that
could be paid to Executive such that the receipt of
the Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to Executive
and the Payments, in the aggregate, shall be reduced
to be equal to the Reduced Amount.
c. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may be
designated by the Company (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
<PAGE> 5
5
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 5, 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 5(d) 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.
d. 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
<PAGE> 6
6
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 5(d), 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.
e. If, after the receipt by Executive of an amount paid
or advanced by the Company pursuant to this Section
5, 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 5(d)) 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 5(d), 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
<PAGE> 7
7
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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the two year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
<PAGE> 8
8
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. 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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel
records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
<PAGE> 9
9
14. 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 March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
-----------------------------------------------
Title: Executive Vice President - Human Resources
/s/ Kevin Conway
-----------------------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the
Company's applicable annual bonus plan with respect to a fiscal year of the
Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a
Change of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(3) any diminution in Executive's title or substantial
diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which
SCL 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.
IX. "Incumbent Director" means a member of SCL's Board of
Directors at the beginning of the period in question, including any director who
was not a member of SCL's Board of Directors at the beginning of such period but
was elected or nominated to the Board of Directors 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
<PAGE> 12
A-3
by a person who has expressed an intent to effect a Change of Control or engage
in a proxy or other control contest).
X. "Permanent Disability" means Executive's 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.
XI. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XII. "Target Bonus" means the target Bonus established for
Executive, whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram &
Sons, Inc. and Daniel Paladino (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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
three years following the Change of Control.
3. Change of Control Benefits.
If Executive's employment with the Company is terminated at
any time within the three years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) three times Executive's Base Salary in
effect on the date of the Change of Control
or the Termination Date, whichever is
higher; provided that if any reduction of
the Base Salary, or any failure to increase
the Base Salary pursuant to an agreement
between Executive and the Company, has
occurred, then the Base Salary on either
date shall be as in effect immediately prior
to such reduction or after giving effect to
such increase, as the case may be; and
(2) three times Executive's Target Bonus in
effect on the date of the Change of Control
or the Termination Date, whichever is
higher; provided that if any reduction of
the Target Bonus, or any failure to increase
the Target Bonus pursuant to an agreement
between Executive and the Company, has
occurred, then the Target Bonus on either
date shall be as in effect immediately prior
to such reduction or after giving effect to
such increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options are
converted or options granted in substitution for such
unvested options) shall become fully exercisable, and
shall remain exercisable for the period applicable to
vested options under the applicable option agreement.
c. Continuation of Benefits. Until the third anniversary
of the Termination Date, the Company shall, at its
expense, provide Executive and his or her
<PAGE> 3
3
spouse and dependents with medical, life insurance
and disability coverages at the level provided to
Executive immediately prior to the Change of Control;
provided, however, that if Executive becomes employed
by a new employer, continuing coverage from the
Company will become secondary to any coverage
afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen
business days after the Termination Date, the Company
shall pay Executive the 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 and
reimbursement for any unreimbursed expenses properly
incurred by Executive in accordance with Company
policies prior to the Termination Date. Executive
shall also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit plans,
policies or programs of the Company, other than any
Company severance policy (payments and benefits in
this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes
of eligibility for retirement, for early commencement
or actuarial subsidies under any Company pension,
medical reimbursement or life insurance plan (or any
such alternative contractual arrangement that the
Executive may have with the Company), Executive will
be credited with an additional three years of service
and age beyond that accrued as of the Termination
Date; provided that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the three-year period
following the Termination Date (or, if earlier, the
date Executive first obtains full-time employment
after the Termination Date), the Company shall
reimburse all reasonable expenses incurred by
Executive for professional outplacement services by
qualified consultants selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. 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.
b. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may be
designated by the Company (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
<PAGE> 5
5
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 5, 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 5(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 5(c), the Company
<PAGE> 6
6
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
5, 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 5(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 5(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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
7. Indemnification; Director's and Officer's Liability Insurance.
<PAGE> 7
7
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the three year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. 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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
<PAGE> 8
8
addresses set forth below, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel
records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
<PAGE> 9
9
14. 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 17th day of March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
--------------------------------------------------
Title: Executive Vice President - Human Resources
/s/ Daniel R. Paladino
-------------------------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a Change
of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(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 SCL 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 first day
of the 14th month following the Change of Control
(the "First Day"), unless either (a) the Chief
Executive Officer of SCL immediately prior to the
Change of Control is still the Chief Executive
Officer of SCL (or a company that directly or
indirectly owns at least 50.1% of the combined voting
power of the then outstanding voting securities with
respect to the election of the board of directors of
SCL or its successor (a "Parent Company")) on the
First Day (or he fails to be the Chief Executive
Officer by reason of death or Permanent Disability)
or (b)
<PAGE> 12
A-3
Executive is serving as an officer of SCL, and SCL is
a Publicly Traded Company (or, if SCL is not a
Publicly Traded Company), then of a Parent Company
that is a Publicly Traded Company, without having
experienced a diminution in title or reporting
relationship or a substantial diminution in duties or
responsibilities in such capacity.
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.
IX. "Incumbent Director" means a member of SCL's Board of Directors at
the beginning of the period in question, including any director who was not a
member of SCL's Board of Directors at the beginning of such period but was
elected or nominated to the Board of Directors 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).
X. "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.
XI. "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.
XII. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XIII. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E.
Seagram & Sons, Inc. and Tod Hullin (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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.
If Executive's employment with the Company is terminated at
any time within the two years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) two times Executive's Base Salary in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Base
Salary, or any failure to increase the Base
Salary pursuant to an agreement between
Executive and the Company, has occurred,
then the Base Salary on either date shall be
as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(2) two times Executive's Target Bonus in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Target
Bonus, or any failure to increase the Target
Bonus pursuant to an agreement between
Executive and the Company, has occurred,
then the Target Bonus on either date shall
be as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options
are converted or options granted in substitution
for such unvested options) shall become fully
exercisable, and shall remain exercisable for the
period applicable to vested options under the
applicable option agreement.
c. Continuation of Benefits. Until the second
anniversary of the Termination Date, the Company
shall, at its expense, provide Executive and his
or her
<PAGE> 3
3
spouse and dependents with medical, life insurance
and disability coverages at the level provided to
Executive immediately prior to the Change of Control;
provided, however, that if Executive becomes employed
by a new employer, continuing coverage from the
Company will become secondary to any coverage
afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within
fifteen business days after the Termination Date,
the Company shall pay Executive the 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 and reimbursement for any
unreimbursed expenses properly incurred by
Executive in accordance with Company policies
prior to the Termination Date. Executive shall
also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit
plans, policies or programs of the Company, other
than any Company severance policy (payments and
benefits in this subsection (d), the "Accrued
Benefits").
e. Additional Benefit Plan Service and Age. For
purposes of eligibility for retirement, for early
commencement or actuarial subsidies under any
Company pension, medical reimbursement or life
insurance plan (or any such alternative
contractual arrangement that the Executive may
have with the Company), Executive will be credited
with an additional two years of service and age
beyond that accrued as of the Termination Date;
provided that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the two-year period
following the Termination Date (or, if earlier,
the date Executive first obtains full-time
employment after the Termination Date), the
Company shall reimburse all reasonable expenses
incurred by Executive for professional
outplacement services by qualified consultants
selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. Gross-Up.
a. Subject to Section 5(b) below, 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.
b. Notwithstanding the provisions of Section 5(a), if
it shall be determined that Executive is entitled
to a Gross-Up Payment, but the Payments do not
exceed 105% of the greatest amount (the "Reduced
Amount") that could be paid to Executive such that
the receipt of the Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be
made to Executive and the Payments, in the
aggregate, shall be reduced to be equal to the
Reduced Amount.
c. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may
be designated by the Company (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
<PAGE> 5
5
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 5, 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 5(d) 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.
d. 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
<PAGE> 6
6
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 5(d), 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.
e. If, after the receipt by Executive of an amount
paid or advanced by the Company pursuant to this
Section 5, 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 5(d))
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
5(d), 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
<PAGE> 7
7
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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the two year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
<PAGE> 8
8
10. 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.
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. 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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel
records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
<PAGE> 9
9
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
14. 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 March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
---------------------------------
Title: Executive Vice President
- Human Resources
/s/ Tod Hullin
---------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a Change
of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(3) any diminution in Executive's title or substantial
diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which
SCL 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.
IX. "Incumbent Director" means a member of SCL's Board of Directors at
the beginning of the period in question, including any director who was not a
member of SCL's Board of Directors at the beginning of such period but was
elected or nominated to the Board of Directors 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
<PAGE> 12
A-3
by a person who has expressed an intent to effect a Change of Control or engage
in a proxy or other control contest).
X. "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.
XI. "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.
XII. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XIII. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram &
Sons, Inc. and Frank Mergenthaler (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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.
If Executive's employment with the Company is terminated at
any time within the two years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) two times Executive's Base Salary in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Base
Salary, or any failure to increase the Base
Salary pursuant to an agreement between
Executive and the Company, has occurred,
then the Base Salary on either date shall be
as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(2) two times Executive's Target Bonus in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Target
Bonus, or any failure to increase the Target
Bonus pursuant to an agreement between
Executive and the Company, has occurred,
then the Target Bonus on either date shall
be as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options are
converted or options granted in substitution for such
unvested options) shall become fully exercisable, and
shall remain exercisable for the period applicable to
vested options under the applicable option agreement.
c. Continuation of Benefits. Until the second
anniversary of the Termination Date, the Company
shall, at its expense, provide Executive and his or
her
<PAGE> 3
3
spouse and dependents with medical, life insurance
and disability coverages at the level provided to
Executive immediately prior to the Change of Control;
provided, however, that if Executive becomes employed
by a new employer, continuing coverage from the
Company will become secondary to any coverage
afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen
business days after the Termination Date, the Company
shall pay Executive the 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 and
reimbursement for any unreimbursed expenses properly
incurred by Executive in accordance with Company
policies prior to the Termination Date. Executive
shall also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit plans,
policies or programs of the Company, other than any
Company severance policy (payments and benefits in
this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes
of eligibility for retirement, for early commencement
or actuarial subsidies under any Company pension,
medical reimbursement or life insurance plan (or any
such alternative contractual arrangement that the
Executive may have with the Company), Executive will
be credited with an additional two years of service
and age beyond that accrued as of the Termination
Date; provided that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the two-year period
following the Termination Date (or, if earlier, the
date Executive first obtains full-time employment
after the Termination Date), the Company shall
reimburse all reasonable expenses incurred by
Executive for professional outplacement services by
qualified consultants selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. Gross-Up.
a. Subject to Section 5(b) below, 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.
b. Notwithstanding the provisions of Section 5(a), if it
shall be determined that Executive is entitled to a
Gross-Up Payment, but the Payments do not exceed 105%
of the greatest amount (the "Reduced Amount") that
could be paid to Executive such that the receipt of
the Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to Executive
and the Payments, in the aggregate, shall be reduced
to be equal to the Reduced Amount.
c. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may be
designated by the Company (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
<PAGE> 5
5
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 5, 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 5(d) 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.
d. 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
<PAGE> 6
6
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 5(d), 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.
e. If, after the receipt by Executive of an amount paid
or advanced by the Company pursuant to this Section
5, 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 5(d)) 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 5(d), 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
<PAGE> 7
7
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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the two year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
<PAGE> 8
8
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. 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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the
personnel records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
<PAGE> 9
9
14. 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 17th day of March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
--------------------------------------------------
Title: Executive Vice President - Human Resources
/s/ Frank Mergenthaler
--------------------------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a Change
of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(3) any diminution in Executive's title, or substantial
diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which
SCL 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.
IX. "Incumbent Director" means a member of SCL's Board of Directors at
the beginning of the period in question, including any director who was not a
member of SCL's Board of Directors at the beginning of such period but was
elected or nominated to the Board of Directors 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).
<PAGE> 12
A-3
X. "Permanent Disability" means Executive's 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.
XI. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XII. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram &
Sons, Inc. and Michael Hallows (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. 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 firm the risks of a change in
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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.
If Executive's employment with the Company is terminated at
any time within the two years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) two times Executive's Base Salary in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Base
Salary, or any failure to increase the Base
Salary pursuant to an agreement between
Executive and the Company, has occurred,
then the Base Salary on either date shall be
as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(2) two times Executive's Target Bonus in effect
on the date of the Change of Control or the
Termination Date, whichever is higher;
provided that if any reduction of the Target
Bonus, or any failure to increase the Target
Bonus pursuant to an agreement between
Executive and the Company, has occurred,
then the Target Bonus on either date shall
be as in effect immediately prior to such
reduction or after giving effect to such
increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options are
converted or options granted in substitution for such
unvested options) shall become fully exercisable, and
shall remain exercisable for the period applicable to
vested options under the applicable option agreement.
<PAGE> 3
3
c. Continuation of Benefits. Until the second
anniversary of the Termination Date, the Company
shall, at its expense, provide Executive and his or
her spouse and dependents with medical, life
insurance and disability coverages at the level
provided to Executive immediately prior to the Change
of Control; provided, however, that if Executive
becomes employed by a new employer, continuing
coverage from the Company will become secondary to
any coverage afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen
business days after the Termination Date, the Company
shall pay Executive the 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 and
reimbursement for any unreimbursed expenses properly
incurred by Executive in accordance with Company
policies prior to the Termination Date. Executive
shall also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit plans,
policies or programs of the Company, other than any
Company severance policy (payments and benefits in
this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes
of eligibility for retirement, for early commencement
or actuarial subsidies under any Company pension,
medical reimbursement or life insurance plan (or any
such alternative contractual arrangement that the
Executive may have with the Company), Executive will
be credited with an additional two years of service
and age beyond that accrued as of the Termination
Date; provided, that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the two-year period
following the Termination Date (or, if earlier, the
date Executive first obtains full-time employment
after the Termination Date), the Company shall
reimburse all reasonable expenses incurred by
Executive for professional outplacement services by
qualified consultants selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. Gross-Up.
a. Subject to Section 5(b) below, 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.
b. Notwithstanding the provisions of Section 5(a), if it
shall be determined that Executive is entitled to a
Gross-Up Payment, but the Payments do not exceed 105%
of the greatest amount (the "Reduced Amount") that
could be paid to Executive such that the receipt of
the Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to Executive
and the Payments, in the aggregate, shall be reduced
to be equal to the Reduced Amount.
c. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may he
designated by the Company (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
<PAGE> 5
5
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 5, 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 5(d) 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.
d. 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
<PAGE> 6
6
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 5(d), 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.
e. If, after the receipt by Executive of an amount paid
or advanced by the Company pursuant to this Section
5, 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 5(d)) 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 5(d), 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
<PAGE> 7
7
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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the two year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
<PAGE> 8
8
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. Notices.
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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the
personnel records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
<PAGE> 9
9
14. 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 17th day of March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
---------------------------------------------------
Title: Executive Vice President - Human Resources
/s/ Michael Hallows
---------------------------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a Change
of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(3) any diminution in Executive's title, or substantial
diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which
SCL 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.
IX. "Incumbent Director" means a member of SCL's Board of Directors at
the beginning of the period in question, including any director who was not a
member of SCL's Board of Directors at the beginning of such period but was
elected or nominated to the Board of Directors 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).
<PAGE> 12
A-3
X. "Permanent Disability" means Executive's 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.
XI. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XII. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram
& Sons, Inc. and John Borgia (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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
three years following the Change of Control.
3. Change of Control Benefits.
If Executive's employment with the Company is terminated at
any time within the three years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments on benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days
after the Termination Date, the Company shall pay
Executive a cash lump sum equal to:
(1) three times Executive's Base Salary in
effect on the date of the Change of Control
or the Termination Date, whichever is
higher; provided that if any reduction of
the Base Salary, or any failure to increase
the Base Salary pursuant to an agreement
between Executive and the Company, has
occurred, then the Base Salary on either
date shall be as in effect immediately prior
to such reduction or after giving effect to
such increase, as the case may be; and
(2) three times Executive's Target Bonus in
effect on the date of the Change of Control
or the Termination Date, whichever is
higher; provided that if any reduction of
the Target Bonus, or any failure to increase
the Target Bonus pursuant to an agreement
between Executive and the Company, has
occurred, then the Target Bonus on either
date shall be as in effect immediately prior
to such reduction or after giving effect to
such increase, as the case may be; and
(3) Executive's Target Bonus (as determined in
(2), above) multiplied by a fraction, the
numerator of which shall equal the number of
days Executive was employed by the Company
in the Company fiscal year in which the
Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock
options outstanding on the date of the Change of
Control (and any options into which such options are
converted or options granted in substitution for such
unvested options) shall become fully exercisable, and
shall remain exercisable for the period applicable to
vested options under the applicable option agreement.
c. Continuation of Benefits. Until the third anniversary
of the Termination Date, the Company shall, at its
expense, provide Executive and his or her
<PAGE> 3
3
spouse and dependents with medical, life insurance
and disability coverages at the level provided to
Executive immediately prior to the Change of Control;
provided, however, that if Executive becomes employed
by a new employer, continuing coverage from the
Company will become secondary to any coverage
afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen
business days after the Termination Date, the Company
shall pay Executive the 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 and
reimbursement for any unreimbursed expenses properly
incurred by Executive in accordance with Company
policies prior to the Termination Date. Executive
shall also receive such employee benefits, if any, to
which Executive may be entitled from time to time
under the employee benefit or fringe benefit plans,
policies or programs of the Company, other than any
Company severance policy (payments and benefits in
this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes
of eligibility for retirement, for early commencement
or actuarial subsidies under any Company pension,
medical reimbursement or life insurance plan (or any
such alternative contractual arrangement that the
Executive may have with the Company), Executive will
be credited with an additional three years of service
and age beyond that accrued as of the Termination
Date; provided that if any benefits afforded by this
Agreement, including the benefits arising from the
grant of additional service and age, cannot be
provided under the qualified pension plan of the
Company due to the qualification provisions of the
Code, the benefit, or its equivalent in value, shall
be provided under a nonqualified pension plan of the
Company.
f. Supplemental Retirement and Profit Sharing Benefits.
Executive will become fully vested in any unfunded
pension benefit provided under any nonqualified
pension plan, program or arrangement in which he or
she participates (including, without limitation, the
Benefit Equalization Plan and the Supplemental
Retirement Account Plan).
g. Outplacement Counseling. For the three-year period
following the Termination Date, (or, if earlier, the
date Executive first obtains full-time employment
after the Termination Date), the Company shall
reimburse all reasonable expenses incurred by
Executive for professional outplacement services by
qualified consultants selected by Executive.
<PAGE> 4
4
4. 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(c), 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 other
person or entity) may have against Executive.
5. 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.
b. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may be
designated by the Company (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
<PAGE> 5
5
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 5, 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 5(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 5(c), the Company
<PAGE> 6
6
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
5, 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 5(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 5(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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company 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.
<PAGE> 7
7
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the three year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. 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
<PAGE> 8
8
when delivered by hand or overnight courier or three days after it has been
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below, or to such other
address as either party may have finished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel
records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
14. 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.
<PAGE> 9
9
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 17th day of March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ Daniel R. Paladino
----------------------------------
Title: Executive Vice President
/s/ John Borgia
----------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the
Company's applicable annual bonus plan with respect to a fiscal year of the
Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a
Change of Control, any successor or successors thereto.
VIII "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(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 SCL 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 first day
of the 14th month following the Change of Control
(the "First Day"), unless either (a) the Chief
Executive Officer of SCL immediately prior to the
Change of Control is still the Chief Executive
Officer of SCL (or a company that directly or
indirectly owns at least 50.1% of the combined voting
power of the then outstanding voting securities with
respect to the election of the board of directors of
SCL or its successor (a "Parent Company")) on the
First Day (or he fails to be the Chief Executive
Officer by reason of death or Permanent Disability)
or
<PAGE> 12
A-3
(b) Executive is serving as an officer of SCL, and
SCL is a Publicly Traded Company (or, if SCL is not a
Publicly Traded Company, then of a Parent Company
that is a Publicly Traded Company), without having
experienced a diminution in title or reporting
relationship or a substantial diminution in duties or
responsibilities in such capacity.
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.
IX. "Incumbent Director" means a member of SCL's Board of
Directors at the beginning of the period in question, including any director who
was not a member of SCL's Board of Directors at the beginning of such period but
was elected or nominated to the Board of Directors 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).
X. "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.
XI. "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.
XII. "SEL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XIII. "Target Bonus" means the target Bonus established for
Executive, whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
TERMINATION PROTECTION AGREEMENT
AGREEMENT effective March 17, 2000 between Joseph E. Seagram &
Sons, Inc. and John Preston (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. 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
ownership or control of SCL. 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 March 17, 2000 (the
"Effective Date") and shall remain in effect until March 31, 2003 (the "Term");
provided, however, that commencing with March 31, 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 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.
If Executive's employment with the Company is terminated at
any time within the two years following a Change of Control by the Company
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 the payments and benefits provided hereafter in this
Section 3 and as set forth in this Agreement. If Executive's employment by the
Company is terminated prior to a Change of Control by the Company (i) at the
request of a party (other than the Company or SCL) involved in the Change of
Control or (ii) otherwise in connection with or in anticipation of a Change of
Control that subsequently occurs, Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as set forth in this Agreement, and
Executive's Termination Date shall be deemed to have occurred immediately
following the Change of Control. Notwithstanding the foregoing, in the event
there is another agreement (e.g. an employment agreement) between the Company
and Executive in effect upon the Termination Date, which agreement by its terms
provides for termination payments or benefits, under the applicable
circumstances (whether or not in connection with a change of control), that are
greater than the applicable payments and benefits provided in any of subsections
(a) through (g) of this
<PAGE> 2
2
Section 3 (the "Other Benefits"), then Executive shall receive the Other
Benefits in lieu of any payments or benefits under such subsection. For example,
if Executive is covered by an employment agreement that provides for a higher
amount of cash severance, in the event Executive is terminated by the Company
without Cause, than that provided by Section 3(a) hereof, such higher amount of
cash severance would be payable in lieu of the cash severance set forth in
Section 3(a), but the payments and benefits set forth in Section 3(b) through
(g) would remain applicable. Notice of termination without Cause or for Good
Reason shall be given in accordance with Section 12, and shall indicate the
specific termination provision hereunder relied upon, the relevant facts and
circumstances and the Termination Date.
a. Severance Payments. Within fifteen business days after the
Termination Date, the Company shall pay Executive a cash lump
sum equal to:
(1) two times Executive's Base Salary in effect on the
date of the Change of Control or the Termination
Date, whichever is higher; provided, that if any
reduction of the Base Salary, or any failure to
increase the Base Salary pursuant to an agreement
between Executive and the Company, has occurred, then
the Base Salary on either date shall be as in effect
immediately prior to such reduction or after giving
effect to such increase, as the case may be; and
(2) two times Executive's Target Bonus in effect on the
date of the Change of Control or the Termination
Date, whichever is higher; provided, that if any
reduction of the Target Bonus, or any failure to
increase the Target Bonus pursuant to an agreement
between Executive and the Company, has occurred, then
the Target Bonus on either date shall be as in effect
immediately prior to such reduction or after giving
effect to such increase, as the case may be; and
(3) Executive's Target Bonus (as determined in (2),
above) multiplied by a fraction, the numerator of
which shall equal the number of days Executive was
employed by the Company in the Company fiscal year in
which the Termination Date occurs and the denominator
of which shall equal 365.
b. Treatment of Stock Options. Any unvested stock options
outstanding on the date of the Change of Control (and any
options into which such options are converted or options
granted in substitution for such unvested options) shall
become fully exercisable, and shall remain exercisable for the
period applicable to vested options tinder the applicable
option agreement.
c. Continuation of Benefits. Until the second anniversary of the
Termination Date, the Company shall, at its expense, provide
Executive and his or her spouse and dependents with medical,
life insurance and disability coverages at the level provided
to Executive immediately prior to the Change of Control;
provided, however, that if Executive becomes employed by a new
employer, continuing
<PAGE> 3
3
coverage from the Company will become secondary to any
coverage afforded by the new employer.
d. Payment of Earned But Unpaid Amounts. Within fifteen business
days after the Termination Date, the Company shall pay
Executive the 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
and reimbursement for any unrefurbished expenses properly
incurred by Executive in accordance with Company policies
prior to the Termination Date. Executive shall also receive
such employee benefits, if any, to which Executive may be
entitled from time to time under the employee benefit or
fringe benefit plans, policies or programs of the Company,
other than any Company severance policy (payments and benefits
in this subsection (d), the "Accrued Benefits").
e. Additional Benefit Plan Service and Age. For purposes of
eligibility for retirement, for early commencement or
actuarial subsidies under any Company pension, medical
reimbursement or life insurance plan (or any such alternative
contractual arrangement that the Executive may have with the
Company), Executive will be credited with an additional two
years of service and age beyond that accrued as of the
Termination Date; provided, that if any benefits afforded by
this Agreement, including the benefits arising from the grant
of additional service and age, cannot be provided under the
qualified pension plan of the Company due to the qualification
provisions of the Code, the benefit, or its equivalent in
value, shall be provided under a nonqualified pension plan of
the Company.
f. Supplemental Retirement and Profit Sharing Benefits. Executive
will become fully vested in any unfunded pension benefit
provided under any nonqualified pension plan, program or
arrangement in which he or she participates (including,
without limitation, the Benefit Equalization Plan and the
Supplemental Retirement Account Plan).
g. Outplacement Counseling. For the two-year period following the
Termination Date (or, if earlier, the date Executive first
obtains full-time employment after the Termination Date), the
Company shall reimburse all reasonable expenses incurred by
Executive for professional outplacement services by qualified
consultants selected by Executive.
4. 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(c), compensation earned from
such employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement
<PAGE> 4
4
shall be subject to reduction or offset in respect of any claims which the
Company (or any other person or entity) may have against Executive.
5. Gross-Up.
a. Subject to Section 5(b) below, 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.
b. Notwithstanding the provisions of Section 5(a), if it
shall be determined that Executive is entitled to a
Gross-Up Payment, but the Payments do not exceed 105%
of the greatest amount (the "Reduced Amount") that
could be paid to Executive such that the receipt of
the Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to Executive
and the Payments, in the aggregate, shall be reduced
to be equal to the Reduced Amount.
c. All determinations required to be made under this
Section 5, 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
PricewaterhouseCoopers or such other nationally
recognized certified public accounting firm as may be
designated by the Company (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
<PAGE> 5
5
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 5, 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
5(d) 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.
d. 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
<PAGE> 6
6
(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 5(d), 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.
e. If, after the receipt by Executive of an amount paid
or advanced by the Company pursuant to this Section
5, 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 5(d)) 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 5(d), 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.
6. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the
Company from terminating Executive's employment for Cause. If Executive is
terminated for Cause, the
<PAGE> 7
7
Company shall have no obligation to make any payments under this Agreement,
except for the Accrued Benefits.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of Executive, at the level in effect immediately prior to
the Termination Date, for the two year period following the Termination Date,
and throughout the period of any applicable statute of limitations.
8. Costs of Proceedings.
Each party shall pay its own costs and expenses in connection
with any legal proceeding (including arbitration), relating to the
interpretation or enforcement of any provision of this Agreement, except that
the Company shall pay such costs and expenses, including attorneys' fees and
disbursements, of Executive if Executive prevails in such proceeding.
9. 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 SCL 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. SCL 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 SCL, 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 9 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.
10. 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.
11. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.
12. Notice.
<PAGE> 8
8
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 delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to 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, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, New York 10152
Attention: General Counsel
If to Executive:
To the most recent address of Executive set forth in the personnel
records of the Company.
13. 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. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not be effective to the degree necessary to
preserve "pooling of interests" accounting treatment (as reasonably determined
by the Company).
<PAGE> 9
9
14. 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 17th day of March, 2000.
JOSEPH E. SEAGRAM & SONS, INC.
By: /s/ John Borgia
-------------------------------------------------
Title: Executive Vice President - Human Resources
/s/ John Preston
-------------------------------------------------
EXECUTIVE
<PAGE> 10
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. "Bonus" means the amount payable to Executive under the Company's
applicable annual bonus plan with respect to a fiscal year of the Company.
IV. "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 Canada, 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 (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.
V. "Change of Control" means the first to occur of any of the
following:
(1) any "person" or "group" (as described in the Act)
becomes 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 SCL
Board of Directors, and also holds more than any
group or person who is the beneficial owner, on the
Effective Date, of over 20% of SCL common shares.
"Person" does not include any SCL or Company employee
benefit plan, any company the shares of which are
held by SCL's shareholders in substantially the same
proportion as they held SCL stock, or any
testamentary trust or estate;
(2) any merger, consolidation, amalgamation, plan of
arrangement, reorganization or similar transaction
involving SCL, other than, in the case of any of the
foregoing, a transaction in which SCL shareholders
immediately prior to the transaction hold immediately
thereafter, in the same proportion as immediately
prior to the transaction, not less than
<PAGE> 11
A-2
50.1% 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;
(3) any change in a majority of SCL's Board of Directors
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 SCL; or
(5) any other transaction so denominated by SCL's Board
of Directors.
VI. "Code" means the Internal Revenue Code of 1986, as amended.
VII. "Company" means Joseph E. Seagram & Sons, Inc. and, after a Change
of Control, any successor or successors thereto.
VIII. "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, Base Salary or Target Bonus;
(2) any decrease in Executive's pension benefit
opportunities or any material diminution in the
aggregate employee benefits, in each case, afforded
to the Executive immediately prior to the Change of
Control; for this purpose employee benefits shall
include, but not be limited to life insurance,
medical and disability benefits, flexible perquisites
and matching gifts;
(3) any diminution in Executive's title, or substantial
diminution in duties or responsibilities (other than
solely as a result of a Change of Control in which
SCL 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.
IX. "Incumbent Director" means a member of SCL's Board of Directors at
the beginning of the period in question, including any director who was not a
member of SCL's Board of Directors at the beginning of such period but was
elected or nominated to the Board of Directors 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).
<PAGE> 12
A-3
X. "Permanent Disability" means Executive's 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.
XI. "SCL" means The Seagram Company Ltd. and, after a Change of
Control, any successor or successors thereto.
XII. "Target Bonus" means the target Bonus established for Executive,
whether expressed as a percentage of Base Salary or a dollar amount.
<PAGE> 1
Exhibit 12(a)
The Seagram Company Ltd. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(U.S. dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
March 31, June 30,
------------------- --------------------
2000 1999 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations,
before tax $ 248 $ (504) $ (579) $ 1,611
Add (deduct):
Dividends from equity companies 77 75 92 56
Fixed charges 601 442 656 406
Interest capitalized, net of amortization -- (1) -- (2)
------- ------- ------- -------
Earnings available for fixed charges $ 926 $ 12 $ 169 $ 2,071
======= ======= ======= =======
Fixed charges:
Interest expense $ 553 $ 393 $ 592 $ 357
Portion of rent expense deemed to
represent interest factor 48 49 64 49
------- ------- ------- -------
Fixed charges $ 601 $ 442 $ 656 $ 406
======= ======= ======= =======
Ratio of earnings to fixed charges 1.54 (a) (b) 5.10
======= ======= ======= =======
</TABLE>
(a) Fixed charges exceeded earnings by $430 million for the nine-month period
ended March 31, 1999.
(b) Fixed charges exceeded earnings by $487 million for the year ended June 30,
1999.
<PAGE> 1
Exhibit 12(b)
Joseph E. Seagram & Sons, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(U.S. dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
March 31, June 30,
----------------- -----------------
2000 1999 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Income (loss) from continuing operations,
before tax $ 46 $ 19 $ (17) $ 17
Add:
Dividends from equity companies 1 1 1 2
Fixed charges 394 226 349 182
Interest capitalized, net of amortization -- -- -- --
----- ----- ----- -----
Earnings available for fixed charges $ 441 $ 246 $ 333 $ 201
===== ===== ===== =====
Fixed charges:
Interest expense $ 386 $ 217 $ 339 $ 170
Portion of rent expense deemed to
represent interest factor 8 9 10 12
----- ----- ----- -----
Fixed charges $ 394 $ 226 $ 349 $ 182
===== ===== ===== =====
Ratio of earnings to fixed charges 1.12 1.09 (a) 1.10
===== ===== ===== =====
</TABLE>
(a) Fixed charges exceeded earnings by $16 million for the year ended June 30,
1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,523
<SECURITIES> 0
<RECEIVABLES> 3,110
<ALLOWANCES> (510)
<INVENTORY> 2,449
<CURRENT-ASSETS> 8,148
<PP&E> 4,546
<DEPRECIATION> (1,496)
<TOTAL-ASSETS> 33,640
<CURRENT-LIABILITIES> 7,022
<BONDS> 7,561
0
0
<COMMON> 4,730
<OTHER-SE> 7,895
<TOTAL-LIABILITY-AND-EQUITY> 33,640
<SALES> 0
<TOTAL-REVENUES> 11,988
<CGS> 6,940
<TOTAL-COSTS> 6,940
<OTHER-EXPENSES> 4,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 487
<INCOME-PRETAX> 248
<INCOME-TAX> 75
<INCOME-CONTINUING> 252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (84)
<NET-INCOME> 168
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.38
</TABLE>
