Exhibit 10-F-7
SEVERANCE AGREEMENT
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THE SEVERANCE AGREEMENT entered into as of the 8th day of
August, 2002, by and between HARTMARX CORPORATION, a Delaware corporation
("Company"), and XXXXX X. XXXXXXX ("Executive").
WITNESSETH THAT:
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WHEREAS, the Executive is a party to a Severance Letter
Agreement with the Company dated November 27, 2000 (the "Severance
Letter");
WHEREAS, the Company recognized at the time the Severance
Letter was entered into, and continues to recognize that, as is the case
with many publicly held corporations, the possibility of a Change in
Control exists and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders; and
WHEREAS, the Company has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive,
to their assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change in
Control; and
WHEREAS, the Company and Executive agree to enter into this
Agreement, superseding that certain Severance Letter; and
WHEREAS, the Company and the Executive intend to enter into
an amended and restated Employment Agreement ("Employment Agreement"),
coincident herewith.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, it is hereby covenanted and agreed by the
parties hereto as follows:
1. Agreement Period. The Agreement Period shall commence on
the effective date hereof and shall continue in effect through December 31,
2004; provided, however, that (a) on December 31, 2003 and each anniversary
thereof the Agreement Period shall be automatically extended by one year
unless prior to such date the Company delivers written notice to Executive
or Executive delivers written notice to the Company, in either case to the
effect that the Agreement Period shall not be so extended; (b) if a Change
in Control shall have occurred during the Agreement Period, the Agreement
Period shall continue in effect for a period of not less than twenty-four
(24) months beyond the month in which such Change in Control occurred; and
(c) if an Imminent Control Change Date (as defined below) occurs before the
end of the Agreement Period, then the notice not to extend this Agreement
shall be void and of no further effect. "Imminent Control Change Date"
means any date on which (i) the Board of Directors of the Company adopts a
resolution by vote of a majority of Directors at a meeting at which a
quorum is present to the effect that an Imminent Control Change Date for
purposes of this Agreement has occurred; (ii) the Company enters into an
agreement, the consummation of which would result in a Change in Control of
the Company; or (iii) such resolution or agreement remains effective and
unrevoked. In the event that such resolution or agreement is revoked or
declared ineffective, the Imminent Control Change Date shall be deemed to
no longer to exist.
2. Nature of the Agreement. In order to induce the Executive
to remain in the employ of the Company, the Company agrees, under the
conditions described herein, to pay the Executive the severance payments
and benefits described herein. Except as provided in Section 7 hereof and
Section 12 hereof, no amount or benefit shall be payable under this
Agreement unless Executive is employed at the time of the Change in Control
and there shall have been a termination of the Executive's employment with
the Company following the Change in Control and during the Agreement
Period.
3. Change in Control; Definitions. A Change in Control shall
mean the occurrence of any of the following:
(a) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner in
connection with a merger or consolidation which would result in the record
holders of the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) in substantially the same
proportions as their ownership immediately prior to such merger or
consolidation at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation; provided that
this exclusion shall only apply to the percentage obtained by merger or
consolidation and shall cease to apply in the event additional securities
are purchased in another transaction; or
(b) during any period of two consecutive years (not
including any period prior to the date of the original Severance
Agreement), individuals who at the beginning of such period constitute the
Board of Directors of the Company ("Board") (together with any new
directors whose election by the Board or whose nomination for election by
the shareholders of the Company was approved by a vote of at least 662/3%
of the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved unless the initial assumption of
office of such subsequently-elected or appointed director was in connection
with (i) an actual or threatened election contest, including a consent
solicitation, relating to the election or removal of one or more members of
the Board, (ii) a "tender offer" (as such term is used in Section 14(d) of
the Securities Exchange Act of 1934), (iii) a proposed merger or
consolidation of the Company, or (iv) a request, nomination or suggestion
of any one or more Beneficial Owner of voting securities of the Company
representing 20% or more of the aggregate voting power of the voting
securities of the Company or the surviving corporation, as applicable))
cease for any reason to constitute 662/3% of the Board then in office; or
(c) there is consummated a merger or consolidation of
the Company (or any direct or indirect subsidiary of the Company) with any
other corporation, other than a merger or consolidation which would result
in the record holders of the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) in substantially
the same proportions as their ownership immediately prior to such merger or
consolidation at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation; or
(d) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity at least 75% of the combined voting power of the voting securities
of which are owned by Persons in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur in the event of a Management Change in Control. A
Management Change in Control shall mean a Change in Control pursuant to
which Executive (alone or with others) acquires or retains, directly or
indirectly, the power to direct or cause the direction of the management
and policies of the Company (whether through the ownership of voting
securities, by contract, or otherwise) and which is directly or indirectly
attributable to a public announcement by Executive (or others acting in
concert with Executive) of an intention to take actions which, if
consummated, would constitute such Management Change in Control. In
addition, no "Change in Control" shall be deemed to have occurred if there
is consummated any transaction or series of integrated transactions
immediately following which the record holders of the combined voting power
of the Company's outstanding securities immediately prior to such
transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or substantially
all of the assets of the Company immediately following such transaction or
series of transactions.
"Person" shall mean any person (as defined in Section 3(a)(9)
of the Securities Exchange Act (the "Exchange Act"), as such term is
modified in Sections 13(d) and 14(d) of the Exchange Act) other than (1)
any employee plan established by the Company, (2) the Company or any of its
affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act)
prior to the transaction resulting in the Change in Control, (3) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (4) a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportions as their
ownership of the Company.
"Beneficial Owner" shall mean beneficial owner as defined in
Rule 13d-3 under the Exchange Act.
4. Termination. The Executive's employment hereunder may be
terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. The Company may terminate the
Executive's employment hereunder for "Disability". Disability means a
mental or physical condition which renders Executive unable or incompetent
to carry out the material job responsibilities which such Executive held or
the material duties to which Executive was assigned at the time the
disability was incurred, which has existed for at least six (6) months and
which in the certified opinion of a physician mutually agreed upon by the
Company and Executive (which agreement neither party shall unreasonably
withhold) is expected to be permanent or to last for an indefinite duration
or a duration in excess of six (6) months.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause (as defined in Section 4(c)(ii)) solely in
accordance with the procedures set forth in Section 4(c)(i). If the Company
fails to comply with each of the requirements described in Section 4(c)(i),
any termination of employment shall be deemed a termination by the Company
without Cause for purposes of this Agreement.
(i) The Company may terminate the Executive's
employment for Cause only upon satisfying each of the
following requirements:
(A) The Company shall have notified Executive in
writing of the conduct allegedly
constituting Cause and the Executive shall
have failed to correct such conduct within
thirty (30) days of the date of his receipt
of such written notice from the Company;
(B) A meeting of the Board shall be called for
the stated purpose of determining whether
Executive's acts or omissions constitute
Cause, whether the Executive failed to
correct such conduct and, if so, whether to
terminate Executive's employment for Cause;
(C) No fewer than forty-five (45) days prior to
the date of such meeting, the Company
provides Executive and each member of
the Board with written notice (the "Notice
of Consideration") of its intent to consider
termination of Executive's employment for
Cause, including (1) a detailed description
of the specific reasons which form the basis
for such consideration, (2) the date, time
and location of such meeting of the Board,
and (3) Executive's rights under clause (D)
below;
(D) Executive shall have the opportunity, if he
so elects, to appear before the Board in
person and, at Executive's option, with
legal counsel, and to present to the Board a
written response to the Notice of
Consideration;
(E) Executive's employment may be terminated for
Cause only if (1) the Executive failed to
correct the conduct constituting Cause
within thirty (30) days of his receipt of
the notice described in clause (A) above,
(2) the acts or omissions specified in the
Notice of Consideration did in fact occur
and do constitute Cause as defined in this
Agreement, (3) the Board makes a specific
determination by an affirmative vote of all
of the members of the Board (excluding for
these purposes Executive) to such effect and
to the effect that Executive's employment
should be terminated for Cause and (4) the
Company thereafter provides Executive with a
Notice of Termination which specifies in
detail the basis of such termination of
employment for Cause and which notice shall
be consistent with the reasons set forth in
the Notice of Consideration.
(ii) For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment
hereunder upon the Executive's:
(A) conviction for the commission of a felony;
or
(B) willful failure to substantially perform his
duties hereunder; or
(C) willful or grossly negligent wrongful
conduct that is demonstrably and materially
injurious to the Company or its affiliates.
For purposes of clauses (B) and (C) of Section 4(c)(ii), Cause shall not
include any act or omission that Executive believed in good faith to have
been in or not opposed to the interest of the Company (without intent of
Executive to gain therefrom, directly or indirectly, a profit to which he
was not legally entitled), or any act or omission of which any member of
the Board, the Chief Executive Officer or any other executive officer of
the Company who is not a party to such act or omission has had actual
knowledge for at least twelve months.
In the event that the existence of Cause shall become an issue in any
action or proceeding between the parties, the Company shall,
notwithstanding the determination referenced in clause (E) Section 4(c)(i)
above, have the burden of establishing by clear and convincing evidence
that the actions or omissions specified in the Notice of Consideration did
in fact occur and do constitute Cause, that Executive failed to correct
such conduct and that the Company has satisfied the substantive and
procedural requirements of Section 4(c). Unless the Company so establishes,
by clear and convincing evidence, any termination of employment shall be
deemed a termination by the Company without Cause for all purposes of this
Agreement.
(d) Good Reason. The Executive may terminate his
employment hereunder for Good Reason. Good Reason shall mean the
occurrence, after a Change in Control, (without the Executive's written
consent) of any one of the following acts by the Company, or failures by
the Company to act:
(i) failure of the Board of Directors of the Company
to elect Executive to the office(s) held by the Executive
immediately prior to the Change in Control; or
(ii) [intentionally omitted]
(iii) Any change in (A) the provisions of the
Company's bylaws describing, or (B) the relative duties and
responsibilities of, the office of Senior Vice President,
General Counsel and Secretary; or
(iv) the assignment to Executive of any duties
inconsistent with Executive's status as Senior Vice
President, General Counsel and Secretary or a substantial
adverse alteration in the nature or status of Executive's
responsibilities; or
(v) any reduction by the Company in the Executive's
annual base salary as in effect immediately prior to the
Change in Control or as the same may be increased from time
to time; or
(vi) the failure by the Company to pay to Executive
any portion of Executive's current compensation, or to pay to
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation
is due; or
(vii) the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to stock option, restricted stock, stock
appreciation right, incentive compensation, bonus and other
plans, unless an economic equivalent arrangement (embodied in
an ongoing substitute or alternative plan) has been made with
respect to such plan; or the failure by the Company to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount or timing of
payment of benefits provided and the level of the Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control; or
(viii) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control, the
taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material perquisite or fringe benefit
enjoyed by the Executive immediately prior to the Change in
Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation
policy in effect immediately prior to the Change in Control;
or
(ix) the relocation of the Executive's principal
place of employment to a location more than fifty (50) miles
from the Executive's principal place of employment as of the
date hereof or the Company's requiring the Executive to be
based anywhere other than such principal place of employment
(or permitted relocation thereof) except for required travel
on the Company's business to an extent substantially
consistent with the Executive's business travel obligations
immediately prior to the Change in Control; or
(x) any purported termination of the Executive's
employment by the Company other than in accordance with this
Agreement; for purposes of this Agreement, no such purported
termination shall be effective; or
(xi) [intentionally omitted]
(xii) the Company's material breach of this
Agreement.
Notwithstanding the foregoing, no inadvertent and isolated
event shall constitute "Good Reason" unless the Executive shall have
notified the Company in writing of the conduct allegedly constituting Good
Reason and the Company shall have failed to correct such conduct within
thirty (30) days of the date of its receipt of such written notice from the
Executive. Any determination by Executive that any of the foregoing events
has occurred and constitutes Good Reason shall be conclusive and
binding for all purposes unless the Company establishes by clear and
convincing evidence that Executive did not have any reasonable basis for
such a determination.
5. Termination Procedure.
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(a) Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive (other than
termination pursuant to Section 4(a) hereof) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 10. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific provision in this Agreement
relied upon and shall identify in reasonable detail the reason for
termination of the Executive's employment under the provision so indicated.
(b) Date of Termination. "Date of Termination" shall
mean (i) if the Executive's employment is terminated by his death, the date
of his death, (ii) if the Executive's employment is terminated pursuant to
Section 4(b) above, the date thirty (30) days after Notice of Termination
(provided that the Executive shall not have returned to the performance of
his duties on a permanent full-time basis during such thirty (30) day
period), (iii) if the Executive's employment is terminated pursuant to
Section 4(c) or 4(d) above, the date thirty (30) days after Notice of
Termination and (iv) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination which shall
be not more than thirty (30) days from the date of such Notice.
6. Compensation Upon Termination.
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(a) Termination due to Death or Disability. If the
Executive's employment is terminated after a Change in Control and during
the Agreement Period by his death or Disability, the Company shall have no
further obligations to provide Executive with the severance benefits
described under Sections 6(b)(i) through (viii) of this Agreement but shall
continue to provide the other payments and benefits provided for under this
Agreement.
(b) Termination By Company without Cause or By
Executive for Good Reason. Upon termination of Executive's employment after
a Change in Control and during the Agreement Period by the Company without
Cause or by Executive for Good Reason hereunder, then, in lieu of any
further salary, bonus, or LTI Plan payments for periods subsequent to the
Date of Termination and in lieu of any severance benefit otherwise payable
to the Executive:
(i) The Company shall pay to the Executive a lump sum
cash severance payment, within five (5) days of the Date of
Termination, equal to three times the higher of the
Executive's annual base salary as of the Date of Termination
and the Executive's annual base salary in effect immediately
prior to the Change in Control.
(ii) The Company shall pay the Executive a lump sum
in cash, within ten (10) days of the Date of Termination,
equal to the sum of (A) any unpaid incentive compensation
(including the cash value, determined without regard to any
restrictions on the sale thereof, of restricted stock)
allocated or awarded to Executive under the MIP with respect
to any fiscal year ending prior to the year in which the Date
of Termination occurs; plus (B) three times the amount equal
to the bonus compensation (including the cash value,
determined without regard to any restrictions on the sale
thereof, of restricted stock) which would be payable under
the MIP with respect to the year in which the Date of
Termination occurs (or if greater, the year in which this
Agreement is effective), calculated based on the assumption
that the Company achieves its "Target" level (as defined in
the MIP) for such year (annual bonus based on such
assumption, "Target Bonus"). The amount set forth in item (B)
above shall be payable to Executive regardless of whether the
Company actually achieves the performance levels upon which
the calculation of such amount is based.
(iii) The Company shall pay the Executive a lump sum
in cash, within ten (10) days of the Date of Termination,
equal to the sum of (A) any unpaid incentive compensation
(including the cash value, determined without regard to any
restrictions on the sale thereof, of restricted stock)
allocated or awarded to Executive under the LTI Plan with
respect to any performance period ending prior to the Date of
Termination; plus (B) a pro rata portion of the aggregate
value of all contingent incentive compensation (including the
cash value, determined without regard to any restrictions on
the sale thereof, of restricted stock) awards to Executive
with respect to any performance periods under the LTI Plan
which are not completed as of the Date of Termination,
calculated based on the assumption that the Company's results
from the beginning of such performance period(s) to the Date
of Termination would continue at the same rate until the
originally intended completion date(s) of such performance
period(s). The amount set forth in item (B) above shall be
payable to Executive regardless of whether the Company
actually achieves the performance level upon which the
calculation of such amount is based.
(iv) During a period of thirty-six (36) months (the
"Severance Period") the Company shall arrange to provide the
Executive with life, disability, accident and health
insurance benefits ("Welfare Benefits") substantially similar
in all material respects to those which the Executive is
receiving immediately prior to the Date of Termination
(without giving effect to any adverse amendment to, or
elimination of, such benefits made after a Change in
Control), or if such benefits are not available or the
provision of such benefits would not be allowed under the
terms of such plans, the Company shall pay Executive the
after-tax economic equivalent thereof. If the Executive
receives, or becomes eligible to receive, Welfare Benefits
from another source, then the Welfare Benefits otherwise
receivable by the Executive pursuant to this Section 6(b)(iv)
shall be reduced to the extent of such other Welfare Benefits
received by, or made available to, the Executive during the
Severance Period (and any such Welfare Benefits received by
or made available to the Executive shall be reported to the
Company by the Executive). Nothing herein shall be deemed to
limit Executive's rights, if any, to thereafter participate
in any retiree medical plan then in effect.
(v) During the Severance Period, the Company shall
arrange to provide the Executive with such material
perquisites as are provided to the Executive immediately
prior to the Date of Termination (without giving effect to
any adverse amendment to, or elimination of, such perquisites
made after a Change in Control).
(vi) Effective as of the Date of Termination, all
stock options (whether or not then fully exercisable) granted
to Executive under any of the Company's stock option plans
prior to the Date of Termination shall become immediately
exercisable and Executive shall be entitled to exercise any
or all of such options at any time prior to the respective
expiration of the term of such options as set forth in the
grant document evidencing same, as though Executive were to
continue as an active employee of the Company for such period
of exercisability.
(vii) Effective as of the Date of Termination, all
restricted stock granted to Executive prior to the date
Executive's employment with the Company is terminated shall
become fully vested and all restrictions thereon shall lapse.
(viii) The Executive shall receive payment of the
incremental qualified and supplemental defined benefit
pension benefits Executive would have earned had Executive's
employment continued during the Severance Period, had he
received credit for service for the Severance Period for all
purposes under the applicable plans, and had the Executive
received compensation during the Severance Period of salary,
at the annual rate equal to the Executive's Base Salary in
effect immediately prior to the Date of Termination (without
giving effect to any decrease therein following the Change in
Control), and bonus, at the annual rate equal to the Target
Bonus. Anything in the applicable plan to the contrary
notwithstanding, the net present value of the Executive's
benefit (as increased hereunder) under any supplemental
defined benefit plan maintained by the Company ("SERP
Benefit") or under any other deferred compensation plan shall
be paid to the Executive in a lump sum in cash by no later
than ten (10) days following the Date of Termination. In the
event that the supplemental defined benefit plan or other
deferred compensation plan does not specify the actuarial
assumptions for determining present value, the present value
shall be determined using the actuarial assumptions that
would be used by the Pension Benefit Guaranty corporation for
purposes of determining the present value of a lump sum
distribution on plan termination.
(c) Termination by the Company for Cause or By
Executive Other than for Good Reason. If the Executive's employment shall
be terminated after a Change in Control and during the Agreement Period by
the Company for Cause or by the Executive other than for Good Reason, the
Company shall have no obligations to provide Executive with the severance
benefits described under Sections 6(b)(i) through (viii) of this Agreement
but shall continue to provide the other payments and benefits provided for
under this Agreement.
(d) Additional Payments. Following any termination of
Executive's employment following the Change in Control and during the
Agreement Period, (i) the Company shall pay the Executive all unpaid
amounts, if any, to which the Executive is entitled as of the Date of
Termination under any plan or program of the Company, including but not
limited to the Company's deferred compensation, benefit or other
compensation plans or programs, at the time such payments are due; (ii)
within ten (10) days of the Date of Termination, the Company shall pay the
Executive, or his legal representative or estate, as applicable, the
Executive's full salary to the Executive through the Date of Termination at
the rate in effect at the time the Notice of Termination is given, together
with all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and
benefit plans, programs or arrangements and (iii) the Company shall pay to
the Executive the Executive's normal post-termination compensation and
benefits as such payments become due (such post-termination compensation
and benefits shall be determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or benefit plans,
programs and arrangements).
7. Excise Taxes. If any of the payments or benefits received
or to be received by the Executive in connection with a Change in Control
or the Executive's termination of employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (such payments or
benefits, being hereinafter referred to as the "Total Payments") will be
subject to any excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Payment")
such that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up payment, shall be
equal to the Total Payments. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in
the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the
Executive and selected by the accounting firm which was, immediately prior
to the Change in Control, the Company's independent auditor (the
"Auditor"), such payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of section 280G(b)(4)(A)
of the Code, (ii) all "excess parachute payments" within the meaning of
section 280G(b)(l) of the Code shall be treated as subject to the Excise
Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the base amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by
the Auditor in accordance with the principles of sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax at the
highest effective marginal rate of federal income taxation (taking into
account the phase out of itemized deductions) in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross- Up Payment is calculated for
purposes of this Section 7), net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is finally determined to be less than the
amount taken into account hereunder in calculating the Gross-Up Payment,
the Executive shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and
local income and employment taxes imposed on the Gross-Up Payment being
repaid by the Executive to the extent that such repayment results in a
reduction in Excise Tax and/or a federal, state or local income or
employment tax deduction) plus any interest received by Executive in
connection with the government's refund of such overpayment. In the event
that the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) at the time
that the amount of such excess is finally determined. The Executive and the
Company shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
8. Change in Control. Effective as of the date of the Change
in Control, all stock options (whether or not then fully exercisable)
granted to Executive under any of the Company's stock option plans prior to
the date of the Change in Control shall become immediately exercisable and
all restricted stock granted to Executive prior to the date of the Change
in Control shall become fully vested and all restrictions thereon shall
lapse.
9. Amendment. This Agreement may be amended in writing by
mutual agreement of the parties without the consent of any other person
and, during the life of Executive, no person, other than the parties
hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
10. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and, if (i) sent by registered
mail or certified mail, or (ii) personally delivered, or (iii) sent via
nationally recognized courier service, to the Company at its principal
executive offices, to the attention of its Chief Executive Officer, or to
Executive at the last address filed by him in writing with the Committee,
as the case may be.
11. Nonalienation. The interests of Executive under this
Agreement are not subject to the claims of his creditors, other than the
Company and its subsidiaries, and may not otherwise be voluntarily or
involuntarily assigned, alienated or encumbered.
12. Successors. In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly 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. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the
same terms as the Executive would be entitled to hereunder if the Executive
were to terminate the Executive's employment for Good Reason after a Change
in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination.
13. Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other
provision shall to the full extent consistent with law continue in full
force and effect. If any provision of this Agreement shall be held invalid
in part, such invalidity shall in no way affect the rest of such provision
not held so invalid, and the rest of such provision, together with all
other provisions of this Agreement, shall to the full extent consistent
with law continue in full force and effect.
14. Applicable Law. The provisions of this Agreement shall be
construed in accordance with the internal laws of the State of Illinois
without regard to common law conflicts of laws principles.
15. Counterpart. The Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without
reference to the others.
16. Attorney's Fees. The Company also shall pay to the
Executive all legal fees, accounting, expert witness or other fees, costs
or expenses incurred by the Executive (together with an additional amount
such that the net amount retained by Executive, after deduction of any
federal, state and local income and employment taxes on the total payments
made pursuant to this paragraph equal the amount of such fees, costs and
expenses incurred by Executive) in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder. The amount of taxes for which the
additional amount is paid to Executive shall be determined in the same
manner used for determining the amount of the Gross-Up Payment provided for
in Section 7. Such payments shall be made within five (5) business days
after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably
may require.
17. Interest on Late Payments. If the Company fails to pay
any amount provided under this Agreement when due, the Company shall pay
interest, compounded monthly, on such amount at a rate equal to the lesser
of (a) (i) the highest rate of interest charged by the Company's principal
lender on its revolving credit agreements as in effect from time to time
during the period of such nonpayment plus 200 basis points, or (ii) in the
absence of such a lender, 300 basis points over the prime commercial
lending rate announced by The Wall Street Journal in effect from time to
time during the period of such nonpayment, or (b) the highest
legally-permissible interest rate allowed to be charged under applicable
law.
18. Beneficiaries. If Executive should die while any amount
is payable to him hereunder, such amount shall be paid to Executive's
devisee, legatee or other designee or, if there is no such designee, to
Executive's estate.
19. WAIVER OF JURY TRIAL. THE COMPANY AND EXECUTIVE WAIVE
THEIR RIGHTS TO REQUEST A JURY TRIAL IN ANY LAWSUIT RELATING TO THIS
AGREEMENT.
20. Mitigation. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking (and, except as provided in Section 6(b)(iv), no payment otherwise
required hereunder shall be reduced on account of) other employment.
21. Letter of Credit. The Company shall establish irrevocable
standby letters of credit issued by The Bank of New York or another bank
having combined capital and surplus in excess of $500 million to secure the
Company's obligations to Executive. Said letters of credit shall be
established prior to an Imminent Control Change Date, and shall be as
follows:
(a) one letter of credit, in substantially the form
attached hereto, to secure the payment of legal fees and related tax
gross-up payment as provided for under Section 16 of this Agreement in the
amount of $5 million, which amount shall be available to the Executive and
each other person covered by the letter of credit; and
(b) one letter of credit, in substantially the form
attached hereto, to secure the other payments and benefits provided for
under this Agreement in an amount which is not less than the amount of
severance and other benefits (the "Severance Benefits") that would be
payable to the Executive pursuant to this Agreement if the Executive is
terminated by the Company without Cause following a Change in Control,
which amount shall be available solely to the Executive.
The amount of the letter of credit described in Section 21(b) above, shall
be increased by the Company from time to time so that such amount is never
less than the amount of the Executive's Severance Benefits. The letters of
credit described in Sections 21(a) and 21(b) may expire on the date on
which the Imminent Control Change Date ceases to exist. Upon a Change in
Control, the letters of credit shall remain in effect and shall not be
subject to termination prior to their respective Expiry Dates as provided
in each such letter of credit.
22. Escrow Account. The Company shall establish an escrow
account for each of the letters of credit described in Section 21 at the
time the letters of credit are established by entering into escrow
agreements with LaSalle Bank National Association, or another bank having
combined capital and surplus in excess of $100 million in substantially the
forms attached hereto.
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signatures appear on immediately following page]
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
the Company has caused these presents to be executed in its name and on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Assistant Secretary, all as of the day and year first above written.
/s/ XXXXX X. XXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxx
Attest: HARTMARX CORPORATION
/s/ XXXXX X. XXXXXX By: /s/ XXXX X. XXXXX
------------------------------- ---------------------------------
Xxxxx X. Xxxxxx Xxxx X. Xxxxx, President and
Assistant Secretary Chief Executive Officer
