Exhibit 10.18
October 24, 1997
PEARSON INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Pearson Inc. establishes, as of January 1, 1997, the Pearson Inc.
Supplemental Executive Retirement Plan (the "Plan") for the purpose of providing
benefits for certain executives selected by the Board of Directors of Pearson
Inc. in excess of those benefits that would be provided to these executives
under the qualified plans maintained by Pearson Inc. and its affiliated
companies.
This Plan is intended to benefit only employees that are included in a
select group of management or highly compensated employees.
ARTICLE 1. - DEFINITIONS
All the terms used in this Plan shall have the same meaning as used in the
Pearson Inc. Pension Plan except as follows:
1.1. ADOPTING EMPLOYER. The Company and any other company listed on Schedule
A. A company shall be included as an Adopting Employer with respect to
the period on and after its adoption date specified in Schedule A.
1.3. APPLICABLE DB PLAN. The Qualified DB Plan in which a Participant
participates. In the case of a Participant that does not participate in a
Qualified DB Plan his Applicable DB Plan shall be deemed to be the
Pearson Plan.
1.4. AVERAGE ANNUAL COMPENSATION. The Participant's average annual SERP
Compensation for the last five consecutive years ending with or within
the year in which the Participant has a Termination of Employment. In the
case of a Participant who is employed for less than five Plan Years, his
Average Annual Compensation shall be based on his entire period of
service.
1.5. BENEFITS COMMITTEE. The committee appointed by the Company to administer
the Plan under Article 8. If the Company does not appoint a committee the
Plan shall be administered by the Company.
1.6. BENEFIT SERVICE. The number of years of service credited under this Plan
for purposes of Article 3 equal to the sum of: (a) the number of years of
a Participant's benefit accrual service determined under the Applicable
DB Plan and (b) any additional service for benefit accrual purposes
wanted to the Participant by the Board.
1.7. COMPANY. Pearson Inc. and any successor thereto by merger, consolidation
or otherwise.
1.8. DEFINED CONTRIBUTION PLAN. A qualified defined contribution plan (or plan
component) maintained by the Company or an Affiliated Company. For
purposes of this Plan a Defined Contribution Plan shall not include a
plan (or plan component) to the extent that is subject to Section 401(k)
or 401(m) of the Code.
1.9. EMPLOYEE. An employee of the Company or any other Adopting Employer.
1.10. GATT Factors. The following actuarial factors: (a) an interest rate equal
to the annual rate of interest on 30-year Treasury securities for the
month of September immediately preceding the
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Plan Year in which the Participant's Annuity Starting Date occurs and
(b) a mortality rate based on the unisex table derived from the 1983
Group Annuity Mortality Table by taking the arithmetic average of male
and female mortality rates, or any other table prescribed by the
Secretary of Treasury as the applicable mortality table under Section
417(e)(3) of the Code.
1.11. PARTICIPANT. A Restoration Plan Participant or a Supplemental Plan
Partcipant.
1.12. PEARSON PLAN. The Pearson Inc. Pension Plan, or any successor plan
thereto.
1.13. PLAN. The Pearson Inc. Supplemental Executive Retirement Plan.
1.14. PLAN YEAR. A calendar year.
1.15. PRIMARY INSURANCE BENEFIT. The primary insurance benefit payable under
the Social Security Act upon a Participant's attainment of age 65. In the
event that a Participant elects under Article 5 to receive his
distribution prior to his attainment of age 65, then the primary insurance
benefit shall be calculated by imputing wages for the period of time from
the date of such distribution forward to the Participant's attainment of
age 65. Computation of the primary insurance benefit may, in the
discretion of the Benefits Committee, reflect an assumption as to
earnings history prior to employment by the Company or an Affiliated
Company. Amounts payable under social insurance programs of foreign
countries may, in the discretion of the Benefits Committee, be treated as
if paid under the U.S. Social Security System.
1.16. QUALIFIED BENEFIT. The benefit determined under (a) or (b) as set forth
below:
(a) In the case of a Participant who is a participant in a Qualified DB
Plan, the Participant's Qualified DB Benefit.
(b) In the case of a Participant who does not participate in a Qualified
DB Plan then (1) solely for purposes of Section 3.2(a) his Qualified
Benefit shall be a Qualified DB Benefit determined
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as though he were a participant in the Pearson Plan, but based on SERP
Compensation and (2) for all other purposes of this Plan (including, but
not limited to Sections 3.2(b), 3.3(a)(2)(B) and 3.3(b)(2)(B)), his
Qualified Benefit shall be his Qualified DC Benefit.
1.17. QUALIFIED DB BENEFIT. The Participant's benefit under the Qualified DB
Plan in which he participates. Subject to the following sentence, the
amount of a Qualified DB Benefit shall be determined based on the form and
timing of the distribution elected under Article 5 (regardless of the form
and timing which he actually elects under the Qualified DB Plan) using the
actuarial factors specified in the Qualified DB Plan. In the case of
benefits attributable to a Qualified DB Plan other than the Pearson Plan
that are distributed in the form of a single cash distribution, the
present value of that benefit shall be determined based on GATT Factors.
1.18. QUALIFIED DB PLAN. A Defined Benefit Plan which is listed on Schedule B.
1.19. QUALIFIED DC BENEFIT. The benefit amount attributable to a Participant's
account balance under the Defined Contribution Plan in which he
participates. Subject to the following sentence, the amount of a Qualified
DC Benefit shall be determined based on the form and timing of the
distribution elected under Article 5 (regardless of the form and timing
which he actually elects under the Defined Contribution Plan) using the
actuarial factors specified in the Pearson Plan. In the case of a benefit
in the form of a single cash distribution, the amount of the Qualified DC
Benefit shall be equal to the value of the Participant's account balance
under the Defined Contribution Plan as of the Valuation Date immediately
following the Participant's Annuity Starting Date.
1.20. RESTORATION BENEFIT. The benefit provided under Section 3.2 of this Plan.
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1.21. RESTORATION PLAN PARTICIPANT. An Employee who is not a Supplemental Plan
Participant and who is designated as a Restoration Plan Participant by the
Board. Such Participant shall only be eligible to receive the Restoration
Benefit under Section 3.2.
1.22. SERP BENEFIT. The benefit specified under Section 3.1 of the Plan.
1.23. SERP COMPENSATION. An Employee's compensation as defined under the
Applicable DB Plan but determined as follows: (a) without regard to the
limits under Section 401(a)(17) of the Code that would otherwise apply,
and (b) including bonus mounts up to 50% of the Employee's base salary on
a basis consistent with similar bonus inclusion determinations under such
Applicable DB Plans.
1.24. SUPPLEMENTAL BENEFIT. The benefits provided under Section 3.3 of the Plan.
A Supplemental Plan Participant shall be eligible to receive the
Supplemental Benefit determined under either Section 3.3(a) (the "Section
3.3(a) Supplemental Benefit") or under Section 3.3(b) (the "Section 3.3(b)
Supplemental Benefit") as designated by the Board at the time a
Participant becomes a Supplemental Plan Participant.
1.25. SUPPLEMENTAL PLAN PARTICIPANT. An Employee who is designated as a
Supplemental Plan Participant by the Board. A Supplemental Plan
Participant shall be eligible to receive a Restoration Benefit under
Section 3.2. In addition, a Supplemental Plan Participant shall be
eligible to receive a Supplemental Benefit.
1.26. SURVIVOR BENEFIT. The benefit payable under Article 6 to a Participant's
Beneficiary under Article 7.
1.27. TERMINATION OF EMPLOYMENT. A Participant's termination of employment for
any reason with the Company and all Affiliated Companies.
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1.28. VESTED INTEREST. The nonforfeitable portion of a Participant's SERP
Benefit determined under Article 4.
1.29. VESTING SERVICE. The number of years of service credited under this Plan
for purposes of Article 4 equal to sum of: (a) the number of years of a
Participant's vesting service under the Applicable DB Plan and (b) any
additional service for vesting purposes granted to the Participant by the
Board.
ARTICLE 2. - ELIGIBILITY
2.1. RESTORATION PLAN PARTICIPANT. An Employee shall become eligible to
receive Restoration Benefits under Section 3.2 of the Plan upon being
designated as a Restoration Plan Participant by the Board.
2.2. SUPPLEMENTAL PLAN PARTICIPANT. An Employee shall become eligible to
receive Restoration Benefits under Section 3.2 and Supplemental Benefits
under Section 3.3 of the Plan upon being designated as a Supplemental Plan
Participant by the Board. At the time an Employee is designated as a
Supplemental Plan Participant, the Board shall specify whether he is
eligible for the Section 3.3(a) Supplemental Benefit or the Section 3.3(b)
Supplemental Benefit.
ARTICLE 3. - SERP BENEFIT
3.1 SERP BENEFIT. A Participant's SERP Benefit shall be equal to the sum of:
(a) his Restoration Benefit; and (b) in the case of a Supplemental Plan
Participant, his Supplemental Benefit.
3.2. RESTORATION BENEFIT. A Participant shall be entitled to receive a
Restoration Benefit equal in amount to the excess of: (a) the amount of
the Qualified Benefit the Participant would have
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received if his benefit were determined based on Benefit Service and
without regard to the limitations imposed by Sections 401(a)(17) or 415 of
the Code, over (b) the amount of the Participant's Qualified Benefit.'
3.3. SUPPLEMENTAL SERP BENEFITS. A Supplemental Plan Participant shall be
entitled to receive either a Section 3.3(a) Supplemental Benefit or a
Section 3.3(b) Supplemental Benefit as described in paragraphs (a) and (b)
below:
(a) SECTION 3.3(a) SUPPLEMENTAL BENEFIT. A Section 3.3(a)
Supplemental Benefit shall be equal to the difference between (1) and
(2) as described below.
(1) The product of (A) the excess of: (i) 1.33% of the
participant's Average Annual Compensation; over (ii) 3.33% of his
Primary Insurance Benefit; and (B) the number of years, not in
excess of 30, of the Participant's Benefit Service; over
(2) The sum of the amount of: (A) the Participant's
Restoration Benefit; and (B) the Participant's Qualified Benefit.
(b) SECTION 3.3(b) SUPPLEMENTAL BENEFIT. A Section 3.3(b)
Supplemental Benefit shall be equal to the difference between (1) and
(2) as described below:
(1) the product of (A) the excess of: (i) 2% of the
Participant's Average Annual Compensation; over (ii) and 3.33% of
his Primary Insurance Benefit; and (B) the number of years not in
excess of 30 of the Participant's Benefit Service; over
(2) The sum of the amount of the: (A) Participant's
Restoration Benefit and (B) the Participant's Qualified Benefit.
The benefit amounts under Section 3.3(a)(1) and 3.3(b)(1) shall be determined
as a benefit payable in the form and at the time elected under Article 5
based on the actuarial factors specified in the
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Participant's Applicable DB Plan, except that in the case of distribution in
the form of a lump sum the amounts under Section 3.3(a)(1) and 3.3(b)(1) shall
be converted to a lump sum based on GATT Factors.
ARTICLE 4. - VESTING
A Participant's SERP Benefit shall become nonforfeitable upon the
earliest of (a) his being credited with five years of Vesting Service (b) his
attainment of age 65 if he is an employee on or after that date, (c) his
incurrence of a Permanent Disability while an employee, of (d) his death while
an employee. [Could vest upon change in control, but would require an
appropriate definition] [Also could include a forfeiture if employee terminates
for cause].
ARTICLE 5. - FORM AND TIMING OF DISTRIBUTION
5.1. FORM OF DISTRIBUTION. A Participant may elect to receive distribution of
his Vested Interest in one of the annuity forms described in the
Applicable DB Plan or in the form of a single cash distribution
immediately following his Termination of Employment.
5.2. TIMING OF DISTRIBUTION. Distribution of a Participant's Vested Interest
shall commence as of the date elected by the Participant. A Participant
shall be entitled to elect to receive distributions of his Vested Interest
as of any date on which he would be eligible to receive such distribution
under the Applicable DB Plan, but in no event shall the distribution
commence after a Participant's Normal Retirement Date (or, if later, his
Termination of Employment). In addition, a Participant shall be entitled
to elect to receive a single cash
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distribution immediately following his Termination of Employment (whether
or not such option was available under the Applicable DB Plan).
5.3. ELECTION OF FORM AND TIMING OF DISTRIBUTION. A Participant's election
regarding the form and timing of his distribution shall be made upon his
becoming a Participant and such election may be changed at any time that
is at least one year prior to the Participant's Annuity Starting Date. In
the event that a Participant changes his election within the one year
prior to his Annuity Starting Date, then such change will not be valid and
his prior election will control. In the event that a Participant has not
elected a distribution, his benefit will be distributed in the form of an
immediate lump sum distribution.
ARTICLE 6. - SURVIVOR BENEFITS
6.1 SURVIVOR BENEFIT. If a married Participant with a Vested Interest dies
before he starts to receive his SERP Benefit, then his Beneficiary shall
be entitled to receive a Survivor Benefit. The Survivor Benefit shall be
equal to the survivor annuity that the Participant's Beneficiary would
have received under this Plan, if the Participant had a Termination of
Employment on the day before his death (or, if earlier, his actual
Termination of Employment) and elected to receive payment of his Vested
Interest in the form of a Qualified Joint and Survivor Annuity as of the
date of his death or, if later, the date on which he would first have
been eligible to receive a distribution under the Applicable DB Plan if
he had survived. [Alternative approach: The Survivor Benefit shall be the
amount that the Participant would have received if he had terminated
employment voluntarily on
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the day prior to his death and elected an immediate lump sum distribution
of his SERP benefit.]
6.2 DISTRIBUTION OF SURVIVOR BENEFIT. Distribution of a Survivor Benefit
shall commence as soon as practicable after a Participant's death. Payment
of this Survivor Benefit shall be as follows: (a) if the Beneficiary is
the Participant's spouse, a life annuity for the spouse's life unless the
spouse elects at least one year prior to the Participant's death to
receive such benefit as a single cash distribution, and (b) if the
Beneficiary is not the Participant's Spouse, a single cash distribution.
If the Survivor Benefit is paid in the form of an annuity and if it
commences before the date the Participant would have been eligible for a
benefit distribution under the Applicable DB Plan it shall be adjusted so
that the Survivor Benefit is the actuarial equivalent of a single life
annuity payable for the spouse's life commencing on the date the
Participant would have been eligible to receive his distribution under
such plan, using the appropriate actuarial equivalence basis under such
plan.
If the Survivor Benefit is paid as a lump sum, this benefit shall be
computed based on the actuarial factors applicable for determining the
present value of a Qualified Benefit under Section 3.2(a).
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ARTICLE 7.- BENEFICIARY DESIGNATION
7.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any
time, to designate any person or persons as his Beneficiary or
Beneficiaries (both principal as well as contingent) to whom payment under
this Plan shall be paid in the event of his death prior to complete
distribution of the benefits due to him under the Plan. Any Beneficiary
designation may be changed by a Participant by the written filing of such
change on a form prescribed by the Company. The filing of a new
Beneficiary designation form will cancel all Beneficiary designations
previously filed.
7.2. NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then the Participant's designated Beneficiary
shall be deemed to be the persons surviving him in the first of the
following classes in which there is a survivor on a per stripes basis:
(a) The surviving spouse;
(b) The Participant's children; or
(c) The Participant's personal representative (executor or administrator).
7.3 EFFECT OF PAYMENT. The payment to the deemed Beneficiary under Section
6.2 shall completely' discharge the Employer's obligations under this
Plan.
ARTICLE 8. - ADMINISTRATION
8.1 ADMINISTRATION. The Plan shall be administered by the Benefits Committee
appointed by the Board. The Benefits Committee shall have full
discretionary authority to determine all questions arising in connection
with the Plan, including its interpretation and the
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determination of eligibility for benefits, and may adopt procedural rules
and may employ and rely upon such legal counsel, actuaries, accountants
and agents as it may deem advisable to assist in the administration of the
Plan. Subject to Section 7.2, decisions of the Benefits Committee shall be
final, conclusive and binding on all persons including Participants, their
Beneficiaries, and the Company. A member of the Benefits Committee who is
also a Participant in the Plan must abstain from voting on any matter
relating specifically to his own benefits (but not benefits in general)
under the Plan. The Benefits Committee may appoint one or more agents to
assist in plan administration.
8.2. CLAIMS PROCEDURE.
(a) CLAIM FOR BENEFITS. Any claim for benefits under this Plan shall be
made in writing to the Benefits Committee. If a claim for benefits is
wholly or partially denied, the Benefits Committee shall so notify the
Participant or Beneficiary within 90 days after receipt of the claim. The
notice of denial shall be written in a manner calculated to be understood
by the Participant or Beneficiary and shall contain (1) the specific
reason or reasons for denial of the claim, (2) specific references to the
pertinent Plan provisions upon which the denial is based, (3) a
description of any additional material or information necessary to perfect
the claim together with an explanation of why such material or information
is necessary and (4) an explanation of the claims review procedure.
(b) REVIEW OF CLAIM. Within 60 days after the receipt by the Participant
or Beneficiary of notice of denial of a claim under paragraph (a) (or at
such later time as may be reasonable in view of the nature of the benefit
subject to the claim and other circumstances), the Participant or
Beneficiary may (1) file a request with the Benefits Committee that it
conduct a full and fair
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review of the denial of the claim, (2) review pertinent documents and (3)
submit questions and comments to the Benefits Committee in writing.
(c) DECISION AFTER REVIEW. Within 60 days after the receipt of a request
for review under Paragraph (b), the Benefits Committee shall deliver to
the Participant or Beneficiary a written decision with respect to the
claim, except that if there are special circumstances (such as the need to
hold a hearing) which require more time for processing the 60-day period
shall be extended to 120 days upon notice to the Participant or
Beneficiary to that effect. The decision shall be written in a manner
calculated to be understood by the Participant or Beneficiary and shall
(1) include the specific reason or reasons for the decision and (2)
contain a specific reference to the pertinent Plan provisions upon which
the decision is based.
8.3 INDEMNIFICATION. The members of the Benefits Committee and its agents
shall be indemnified and held harmless by the Company against and from any
and all loss, cost, liability, or expense that may be imposed upon or
incurred by them in connection with or resulting from any claim, action,
suit, or proceeding to which they may be a party or in which they may be
involved by reason of any action taken or failure to act under this Plan
and against and from any and all amounts paid by them in settlement (with
the Company's written approval) or paid by them in satisfaction of a
judgment in any action suit, or proceeding. The foregoing shall not be
applicable to any person if the loss, cost, liability or expense is due to
such person's gross negligence or willful misconduct.
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ARTICLE 9.- AMENDMENT AND TERMINATION OF PLAN
The Company may at any time amend or terminate the Plan in whole or in part;
provided, however, that no amendment or termination shall be effective to
decrease or restrict any amount credited to a Participant's Accounts at the
time of such amendment or termination.
ARTICLE 10.- MISCELLANEOUS
10.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries shall
have no legal or equitable rights, interest or claims in any property or
assets of the Company establish or accumulate to aid in providing plan
benefits. The Company's contractual obligation under the Plan shall be
merely that of an unfunded and unsecured promise of the Company to pay
money in the future. Benefits shall be reflected on the accounting records
of the Company. Nothing contained in this Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust
or a fiduciary relationship of any kind between the Company and a
Participant or any other person.
10.2. NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person,
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nor be transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency.
10.3 NOT A CONTRACT OF SERVICE. The terms and conditions of this Plan shall
not be deemed to constitute a contract of service between the Company and
the Participant, and the Participant (or his Beneficiary) shall have no
rights against the Company except as may otherwise be specifically
provided herein. Moreover, nothing in this Plan shall be deemed to give a
Participant the right to be retained in the employment of the Company.
10.4. MERGER, CONSOLIDATION OR ACQUISITION. In the event of a merger,
consolidation or acquisition where the Company is not the surviving
corporation, unless the successor or acquiring corporation shall elect to
continue and carry on the Plan, this Plan shall terminate and no
additional benefits shall accrue. Unpaid benefits which have been accrued
up to the date of the merger, consolidation or acquisition shall be paid
as scheduled unless the successor or acquiring corporation elects to
accelerate payment.
10.5 PROTECTIVE PROVISIONS. A Participant (or Beneficiary) will cooperate
with the Company by furnishing any and all information requested by the
Company, in order to facilitate the payment of benefits hereunder.
10.6. TAX WITHHOLDING. The Company may withhold from a payment any federal,
state or local taxes required by law to be withheld with respect to such
payments and such sums as the Company may reasonably estimate as necessary
to cover any taxes for which the Company may be liable and which may be
assessed with regard to such payment.
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10.7 APPLICABLE LAW. The Plan, and any Participation Agreement related thereto,
shall be governed by the laws of the State of New York without regard to
the principles of conflicts of law.
10.8. SEPARABILITY. If any provision of this Plan is held invalid or
unenforceable, to the extent necessary to effectuate the purposes of this
Plan, its invalidity or unenforceability shall not affect any other
provisions of the Plan and the Plan shall be construed and enforced as if
such provisions had not been included therein.
10.9 USAGE. Whenever applicable, the masculine gender, when used in the Plan,
shall include the feminine or neuter gender, and the singular shall
include the plural.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officers in a number of copies, each of which shall
be deemed an original but all of which shall constitute one and the same
instrument, this _________ day of ________________, ____, but effective
as of the first day of January, 1998.
PEARSON INC.
By ___________________________________
ATTEST: __________________________
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SCHEDUIE A
LIST OF ADOPTING EMPLOYERS
NAME OF ADOPTING EMPLOYER ADOPTION DATE
------------------------- -------------
PEARSON INC. JANUARY 1, 1997
SCHEDULE B
QUALIFIED DB PLANS
THE PEARSON INC. PENSION PLAN
ADDISON-WESLEY PUBLISHING COMPANY, INC. RETIREMENT PLAN