LIZ CLAIBORNE, INC. EXECUTIVE TERMINATION BENEFITS AGREEMENT
Exhibit 10.3
LIZ CLAIBORNE, INC.
EXECUTIVE TERMINATION BENEFITS AGREEMENT
EXECUTIVE TERMINATION BENEFITS AGREEMENT
This second amended and restated Executive Termination Benefits Agreement (this
“Agreement”), dated as of the 14th day of July, 2009 (the “Effective Date”), is by
and between Liz Claiborne, Inc., a Delaware corporation (the “Company”), and Xxxxxxx X.
XxXxxx (the “Executive”).
WHEREAS, the Company’s Board of Directors (the “Board”) recognizes that the
possibility of a change in control of the Company and the uncertainty and questions which it may
raise may result in the departure or distraction of the Executive to the detriment of the Company
and its stockholders;
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his assigned duties in the
face of the inevitable distraction of the Executive by virtue of the personal uncertainties and
risks created by the possibility, threat or occurrence of a change in control of the Company;
WHEREAS, should the Company be faced with a possible change in control situation, in addition
to the Executive’s regular duties, he may be called upon to assist in the assessment of proposals,
advise management and the Board as to whether such proposals would be in the best interests of the
Company and its stockholders, and to take such other actions as the Board might determine to be
appropriate;
WHEREAS, the Company and the Executive originally entered into this Agreement on October 13,
2006 and, in order to avoid certain adverse federal income tax consequences to the Executive as a
result of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”),
the Company and the Executive amended and restated this Agreement as of December 24, 2008;
WHEREAS, the Company and the Executive desire to amend and restate this Agreement as of the
date first written above in order to reflect the replacement of the Executive’s amended and
restated employment agreement dated as of December 24, 2008 with the severance benefits agreement
between the Company and the Executive dated the date hereof (the “Severance Benefits
Agreement”).
NOW, THEREFORE, to assure the Company that it will have the continued undivided attention and
services of the Executive and the availability of his advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control of the Company, and to induce the
Executive to remain in the employ of the Company in such a circumstance, for the benefit of the
Company and its shareholders, and for other good and valuable consideration, the Company and the
Executive agree as follows:
1. Term of Agreement.
(a) Except as otherwise provided in Section 1(b) below, this Agreement shall be effective as
of the date hereof and shall continue in effect until the end of the “Agreement Term” as such term
is used in the Severance Benefits Agreement.
(b) If a Change in Control shall have occurred at any time during the period in which this
Agreement is effective, then notwithstanding any provision hereof to the contrary, this Agreement
shall be effective and continue in effect for (i) the remainder of the month in which the Change in
Control occurred and (ii) a term of thirty-six (36) months beyond the month in which such Change in
Control occurred; provided that if any obligations of the Company hereunder shall not have been
fully and finally discharged at the end of such thirty-six (36) month period, this Agreement shall
remain in effect until such obligations shall have been finally discharged in full. The period
commencing on the earlier of a Potential Change in Control (if applicable) or Change in Control and
ending with the conclusion of such thirty-six (36) month period shall be referred to hereinafter as
the “Protected Period”.
2. Change in Control and Potential Change in Control.
(a) For purposes of this Agreement, a “Change in Control” shall be deemed to have
occurred:
(i) if any person as defined in Section 3(a)(9) of the Securities Exchange Act
of 1934, as amended from time to time (the “Exchange Act”), and as used in
Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d)
of the Exchange Act (a “Person”), but excluding the Company, any subsidiary
of the Company and any employee benefit plan sponsored or maintained by the Company
or any subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the “beneficial owner” (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of Company
securities representing 25% or more of either (i) the then outstanding shares of
the Company’s common stock or (ii) the combined voting power of the Company’s then
outstanding voting securities entitled to vote generally in the election of
directors; provided, however, that the following acquisitions shall not constitute
a Change in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), or (B) any
acquisition by any corporation or similar entity pursuant to a reorganization,
merger or consolidation if following such reorganization, merger or consolidation,
the conditions described in sub-clauses (1), (2) and (3) of Section 2(a)(iii) below
have been satisfied; or
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(ii) if individuals who, as of the date hereof, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company’s
stockholders, was approved by a vote of at least two-thirds (2/3) of the directors
then comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) upon consummation of a reorganization, merger or consolidation of the
Company (a “Business Combination”), in each case, unless, following such
Business Combination, (1) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the then outstanding shares of
common stock of the Company and the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors immediately prior to such Business Combination beneficially own, directly
or indirectly, more than fifty percent (50%) of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company or
all or substantially all of the Company’s assets either directly or through one or
more subsidiaries), (2) no Person (excluding (A) any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination and (B) any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, 25% or more of, respectively, the then
outstanding shares of the common stock of the Company, or the combined voting power
of the then outstanding voting securities of the Company entitled to vote generally
in the election of directors) beneficially owns, directly or indirectly, 25% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting power
of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (3) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of the
initial agreement
relating to, or of the action of the Incumbent Board providing for, such
Business Combination; or
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(iv) upon consummation of the sale or other disposition of all or
substantially all of the assets of the Company, unless following such transaction
(1) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of common stock of
the Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors immediately
prior to such transaction beneficially own, directly or indirectly, more than sixty
percent (60%) of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the acquiring
corporation (including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets
either directly or through one or more subsidiaries), (2) no Person (excluding (A)
any employee benefit plan (or related trust) of the Company or such acquiring
corporation and (B) any Person beneficially owning, immediately prior to such
transaction, 25% or more of, respectively, the then outstanding shares of the
common stock of the Company, or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors) beneficially owns, directly or indirectly, 25% or more of, respectively,
the then outstanding shares of common stock of the acquiring corporation or the
combined voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors, and (3) at least a
majority of the members of the board of directors of the acquiring corporation were
members of the Incumbent Board at the time of the execution of the initial
agreement relating to, or of the action of the Incumbent Board providing for, such
sale or disposition; or
(v) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
(b) For purposes of this Agreement, a “Potential Change in Control” shall be deemed to
have occurred if (i) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly
announces an intention to take or to consider taking actions which if consummated would constitute
a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred; provided that the Board shall not be
precluded from adopting a resolution to the effect that for purposes of this Agreement, it is the
good faith
opinion of the Board that a Potential Change in Control has been abandoned and that a
Potential Change in Control no longer exists.
(c) For purposes of Sections 3 through 9 of this Agreement, the term “Company” shall include
Liz Claiborne, Inc. and any successor thereto, whether by merger, reorganization, consolidation,
acquisition of substantially all of its assets or any other means.
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3. Covered Termination.
(a) In the event that the Executive’s employment is terminated during the Protected Period
either (i) by the Company without Cause (as defined in Section 3(c) below) or (ii) by the Executive
for Good Reason (as defined in Section 3(b) below) (each, a “Covered Termination”), the
Company will provide the Executive with the payments and benefits set forth in Section 4 below.
(b) For purposes of this Agreement, “Good Reason” shall mean the occurrence of one or
more of the following events (regardless of whether any other reason, other than Cause as provided
below, for such termination exists or has occurred, including without limitation other employment):
(i) failure to elect or reelect or otherwise maintain the Executive in the
offices or positions, or substantially equivalent offices or positions, of or with
the Company, which the Executive held immediately prior to the Change of Control;
(ii) a significant adverse change in the nature or scope of the authorities,
powers, functions, duties or responsibilities attached to the position with the
Company which the Executive held immediately prior to the Change in Control;
(iii) a material reduction by the Company, without the Executive’s prior
consent, in either (1) the Executive’s annual base salary immediately prior to the
Change in Control or (2) the Executive’s target bonus opportunity (expressed as a
percentage of the Executive’s annual base salary) immediately prior to the Change
in Control;
(iv) the Company’s requiring the Executive, without the Executive’s prior
consent, to be based more than fifty (50) miles from the Company’s offices at which
the Executive is based immediately prior to the Change in Control (excluding for
this purpose 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, in the event the Executive consents to any such
relocation of his offices, the failure by the Company to provide the Executive with
all of
the benefits of the Company’s relocation policy as in effect immediately prior
to the Change in Control (other than an insubstantial and inadvertent failure
remedied by the Company promptly after receipt of notice thereof given by the
Executive);
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(v) the failure by the Company, without the Executive’s prior consent, to pay
to the Executive any portion of the Executive’s current compensation (for purposes
of this clause (v), “current compensation” shall mean the Executive’s annual base
salary as in effect on the date hereof or as the same may be increased from time to
time, plus the bonuses awarded to the Executive pursuant to the Company’s cash
incentive bonus plan), or to pay to the Executive any portion of any installment or
deferred compensation under any deferred compensation program of the Company within
twenty (20) days after request for payment by the Executive after such deferred
compensation is due, in each case, other than an insubstantial and inadvertent
failure remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(vi) the failure by the Company to continue in effect any then ongoing
compensation or benefit plan in which the Executive participates immediately prior
to the Change in Control and which is material to the Executive’s total
compensation opportunity on either an annual or long-term basis, including, but not
limited to, the Company’s 2005 Stock Incentive Plan, any other long-term incentive
plan of the Company, or any substitute plan for any of the foregoing adopted prior
to the Change in Control, unless an equitable 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 on a basis
not materially less favorable to the Executive, in terms of the amount of the
compensation opportunities so provided, to those provided to the Executive
immediately prior to the Change in Control, it being agreed, without limiting the
foregoing, for the avoidance of doubt, that the Company shall be deemed to have
failed to continue the Executive’s participation in such plans on a basis not
materially less favorable to the Executive in the event that the Executive’s target
long-term incentive compensation opportunity (expressed as a percentage of the
Executive’s base salary) subsequent to the Change of Control shall not equal or
exceed his long-term incentive compensation opportunity (expressed as a percentage
of the Executive’s base salary) as in effect immediately prior to the Change in
Control;
(vii) the failure by the Company to continue to provide the Executive with
benefits under the Company’s retirement, life insurance, medical, dental, health,
accident and disability plans in which the
Executive was participating immediately prior to the Change in Control and
which are material to the Executive’s overall compensation;
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(viii) the failure of the Company to obtain an agreement from any successor to
assume and agree to perform this Agreement as contemplated by Section 9 below prior
to the effective date of any such succession, or, if such an agreement is not so
obtained, the failure of the Company, within three (3) business days after
receiving a written request from the Executive for such agreement, to so provide
such agreement; or
(ix) any purported termination of the Executive’s employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of Section
5(a) below.
The Executive’s continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder. Notwithstanding the
foregoing, (i) the occurrence of an event that would otherwise constitute Good Reason hereunder
shall cease to be an event constituting Good Reason if the Executive does not provide a Notice of
Termination to the Company within ninety (90) days of the initial existence of such event, (ii) the
Executive must give the Company notice and a 30-day period to cure the event constituting Good
Reason and (iii) the Executive must actually terminate his employment within two (2) years
following the initial existence of such Good Reason event.
(c) For purposes of this Agreement, “Cause” shall mean and be limited to:
(i) the Executive’s willful and intentional repeated failure or refusal,
continuing after notice that specifically identifies the breach(es) complained of,
to perform substantially his material duties, responsibilities and obligations
(other than a failure resulting from the Executive’s incapacity due to physical or
mental illness or other reasons beyond the control of the Executive), and which
failure or refusal results in demonstrable direct and material injury to the
Company;
(ii) any willful and intentional act or failure to act involving fraud,
misrepresentation, theft, embezzlement, dishonesty or moral turpitude
(collectively, “Fraud”) which results in demonstrable direct and material
injury to the Company;
(iii) conviction of (or a plea of nolo contendere to) an offense which is a
felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction
involved but which involves Fraud; or
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(iv) the Executive’s complete inability to perform his material duties,
responsibilities and obligations on account of a physical or mental incapacity or
impairment for a period of more than 180 consecutive days or for an aggregate of
240 days within a 360-day period, which incapacity or impairment continues for more
than thirty (30) days after the Executive’s receipt of written notice from the
Company given after such 180- or 240-day period has run without the Executive’s
return, on a substantially full-time basis, to employment. For purposes of
determining whether Cause exists, no act, or failure to act, on the Executive’s
part shall be deemed “willful” or “intentional” unless done, or omitted to be done,
by the Executive in bad faith, and without reasonable belief that his action or
omission was in the best interests of the Company.
For purposes of clause (iv) above, a determination of the Executive’s complete inability to
perform his material duties, responsibilities and obligations will be made by a single physician
satisfactory to both the Executive and the Company; provided that if the Executive and the Company
cannot agree as to a single physician, then each will select a physician and these two together
will select a third physician, whose determination will be binding on the Executive and the
Company. The Executive shall have the right to present to the Company and such physician such
information and arguments on the Executive’s behalf as the Executive deems appropriate, including
the opinion of the Executive’s personal physician.
Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for
“Cause” hereunder unless and until there shall have been delivered to the Executive a copy of a
resolution (a “Cause Resolution”) duly adopted by the affirmative vote of not less than
two-thirds (2/3) of the Board then in office at a meeting of the Board called upon reasonable
notice to all Directors and held for such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel
present at such meeting), to be heard before the Board at such meeting, finding that, in the good
faith opinion of the Board, the Executive had committed an act constituting “Cause” as herein
defined and specifying the particulars thereof in detail. Nothing herein will limit the right of
the Executive or his beneficiaries to contest the validity or propriety of any such determination
and/or Cause Resolution.
(d) Nothing contained in this Agreement is intended to, or shall operate to, preclude the
payment of any amounts (other than cash severance) otherwise payable to the Executive under any of
the Company’s employee benefit plans, stock plans, programs and arrangements and/or under the
Severance Benefit Agreement, or to limit or otherwise adversely affect such rights as the Executive
may have under any contract or agreement with the Company.
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4. Severance Payments and Benefits.
(a) In lieu of any cash severance payments to which the Executive may otherwise be entitled
under the Severance Benefit Agreement or otherwise (and which cash payments the Executive hereby
expressly waives), and subject to the provisions regarding cutback of benefits in certain
circumstances as expressly provided in Section 6(h) below, the Company shall pay or provide to the
Executive the following amounts (the “Severance Payments”) upon the occurrence of a Covered
Termination during the Protected Period (except with respect to clause (iv) below, which shall be
paid at the time as specified therein):
(i) an amount equal to three (3) times the amount of the Executive’s effective
annual base salary rate, as in effect immediately prior to a Change of Control or
the Date of Termination (as defined in Section 5(b) below), whichever amount is
higher;
(ii) an amount equal to three (3) times the average annual bonus earned by the
Executive under the Company’s cash incentive bonus plan in respect of the three
fiscal years of the Company ending prior to (A) the date on which a Change of
Control occurred or (B) the date on which the Date of Termination occurred,
whichever amount is higher;
(iii) an amount equal to the Executive’s annual bonus earned or accrued in
respect of any prior fiscal year of the Company but not yet paid as of the Date of
Termination; and
(iv) an amount equal to the product of (x) the greater of (A) the Executive’s
target bonus opportunity under the Company’s cash incentive bonus plan for the
fiscal year in which the Date of Termination occurs; and (B) the average bonus the
Executive earned for the three (3) fiscal years preceding the fiscal year in which
the Change in Control occurred, multiplied by (y) a fraction, the numerator of
which is the number of months and partial months expired in the fiscal year of the
Company in which the Date of Termination occurs, through the Date of Termination,
and the denominator of which is twelve (12).
(b) In the case of a Covered Termination during the Protected Period, in addition to the
payments provided for in Section 4(a) above, the Company shall, during the period ending thirty-six
(36) months after the month in which the Date of Termination occurs, arrange at the Company’s sole
expense to provide the Executive and his dependents with life, medical, dental, health, and
disability insurance benefits at least equal, in type and level of coverage, to those which the
Executive and his dependents were receiving immediately prior to the Notice of Termination
(without, however, giving any effect to any reduction in such benefits subsequent to a Change in
Control). Benefits otherwise receivable by the Executive pursuant to this Section 4(b) shall be
reduced to
the extent that comparable benefits equal in type and level of coverage are actually received
by the Executive from, or made available to the Executive by, a subsequent employer without greater
cost to him than as provided by the Company during such 36-month period (and any such benefits
received by or made available to the Executive shall be reported to the Company by the Executive).
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(c) In the case of a Covered Termination during the Protected Period, (i) any unvested amount
credited to the Executive’s bookkeeping account under the Company’s Supplemental Executive
Retirement Plan as in effect on the date hereof, and as the same may be amended prior to any Change
of Control (“SERP”), will become fully vested as of the Date of Termination, and in such
event such bookkeeping account shall be increased as of the Date of Termination by the aggregate
amount of the unvested portion of any account maintained for the Executive under any of the
Company’s “qualified” retirement plans as of the Executive’s date of termination of employment; and
(ii) the Executive’s SERP account shall be distributed to the Executive as provided under the terms
of the SERP and in accordance with the Executive’s distribution election then in effect.
(d) In the case of a Covered Termination during the Protected Period, notwithstanding anything
to the contrary contained herein, all outstanding stock options and restricted share, and
restricted unit awards, if any, granted to the Executive under any of the Company’s stock incentive
plans or other similar plans shall become fully vested and, to the extent applicable, exercisable.
(e) In the case of a Covered Termination during the Protected Period, the Company shall pay to
the Executive all other amounts vested, accrued or earned by the Executive through the Date of
Termination and amounts otherwise owing under the then existing plans and policies of the Company,
including but not limited to all compensation or other amounts previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the Company.
(f) The Company shall pay to the Executive the amount due pursuant to Section 4(a) in a lump
sum cash payment as soon as practicable, but in any event by the fifth (5th) business day following
the Date of Termination.
5. Notice of Termination and Date of Termination.
(a) During the Protected Period, any termination of the Executive’s employment by the
Executive for Good Reason or by the Company for Cause or without Cause shall be communicated by
written Notice of Termination from the party terminating employment hereunder to the other party
hereto in accordance with Section 10 below. For purposes of this Agreement, a “Notice of
Termination” shall mean (i) a notice given to the Executive by the Company indicating a
termination without Cause, or (ii) a notice given in good faith and with a reasonable belief that
Good Reason or Cause, as the case may be, has occurred, which shall indicate the specific
termination provision
in this Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive’s employment under the
provision so indicated. Any Notice of Termination must specify a Date of Termination; any Notice
of Termination for Cause shall include a copy of the relevant Cause Resolution.
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(b) For purposes of this Agreement, “Date of Termination” shall mean (i) in the case
of a termination by the Company for Cause or by the Executive for Good Reason, the date specified
as the Executive’s last day of employment in the Notice of Termination, which shall not be less
than ten (10) business days after the date such Notice of Termination is deemed given in accordance
with Section 10 below, or (ii) in any other case, the last day worked by the Executive as reflected
on the Company’s payroll records.
6. Tax Gross-Up; Potential Reduction in Severance Amount.
(a) Anything in this Agreement to the contrary notwithstanding, but subject to Section 6(h),
in the event that a Covered Termination shall occur during the Protected Period and it shall be
determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for
in this Section 6) or distribution by the Company or any of its subsidiaries to or for the benefit
of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or pursuant to any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or similar right, restricted stock or
deferred stock, or the lapse or termination of any restriction on, deferral period or the vesting
or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or
any successor provision thereto, by reason of being considered “contingent on a change in ownership
or control” of the Company within the meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the “Excise Tax”), then the
Executive shall be entitled to receive an additional payment or payments (collectively, a
“Gross-Up Payment”) as provided herein. The Gross-Up Payment shall be in an amount such
that, after payment by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax and any federal, state or local income and
employment tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
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(b) Subject to the provisions of Section 6(f) below, all determinations required to be made
under this Section 6, including the determination as to whether an Excise Tax is payable by the
Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid
by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting
or benefits consulting firm (either, the “Accounting Firm”) selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit its determination
and detailed supporting calculations to both the Company and the Executive within 30 calendar days
after the date of the Change in Control, the Date of Termination, if applicable, and any such other
time or times as may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall pay the required
Gross-Up Payment to the Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive; provided that the Gross-Up Payment shall
in all events be paid no later than the end of the Executive’s taxable year next following the
Executive’s taxable year in which the Excise Tax (and any income or other related taxes or interest
or penalties thereon) on a Payment are remitted to the Internal Revenue Service or any other
applicable taxing authority or, in the case of amounts relating to a claim described in Section
6(f) that does not result in the remittance of any federal, state, local and foreign income,
excise, social security and other taxes, the calendar year in which the claim is finally settled or
otherwise resolved. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall, at the same time as it makes such determination, furnish the Company and the
Executive an opinion that the Executive has substantial authority not to report any Excise Tax on
his federal, state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and the possibility of
similar uncertainty regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an “Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to Section 6(f) below and the Executive thereafter is required to make a payment
of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed supporting calculations
to both the Company and the Executive as promptly as possible. Any such Underpayment shall be
promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting Firm access to and copies
of any books, records and documents in the possession of the Company or the Executive, as the case
may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and calculations
contemplated by Section 6(b) above. Any determination by the Accounting Firm as to the amount of
the Gross-Up Payment shall be binding upon the Company and the Executive.
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(d) The federal, state and local income or other tax returns filed by the Executive shall be
prepared and filed on a consistent basis with the determination of the
Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall
make proper payment of the amount of any Excise Payment, and at the request of the Company, provide
to the Company true and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant,
as filed with the applicable taxing authority, and such other documents reasonably requested by the
Company, evidencing such payment. If prior to the filing of the Executive’s federal income tax
return, or corresponding state or local tax return, if relevant, the Accounting Firm determines
that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business
days after receipt of the Accounting Firm’s determination pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Section 6(b) above shall be borne solely by the
Company. If such fees and expenses are initially paid by the Executive, the Company shall
reimburse the Executive the full amount of such fees and expenses within five (5) business days
after receipt from the Executive of a statement therefor and reasonable evidence of the payment
thereof.
(f) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service or any other taxing authority that, if successful, would require the payment by the Company
of a Gross-Up Payment or any additional Gross-Up Payment. Such notification shall be given as
promptly as practicable but no later than ten (10) business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the earlier of (x) the
expiration of the thirty (30) calendar day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such claim is due. If
the Company notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;
(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 competent
in respect of the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively to contest
such claim; and
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(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 interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax basis,
for and against any Excise Tax or income or employment tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment of
costs and expenses.
Without limiting the foregoing provisions of this Section 6(f), the Company shall control all
proceedings taken in connection with the contest of any claim contemplated by this Section 6(f)
and, at its sole option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the applicable taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense) and may, at its
option, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive
and direct the Executive to xxx for a refund or contest the claim in any permissible manner, and
the 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, however, that if the Company pays such claim and directs the Executive
to xxx for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such payment or with respect to any imputed income with respect to
such payment; and provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect to which the
contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the 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.
(g) If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of
an amount on the Executive’s behalf pursuant to Section 6(f), the Executive becomes entitled to
receive any refund with respect to the Excise Tax to which such Gross-Up relates or with respect to
such claim, the Executive shall (subject to the Company’s complying with the requirements of
Section 6(f)) above promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable thereto). If, after payment by the
Company of an amount on the Executive’s behalf pursuant to Section 6(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) calendar days after such determination, then
the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 6.
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(h) Notwithstanding any provision of this Agreement to the contrary, if but for this sentence,
the Company would be obligated to make “parachute payments” to the Executive, whether under this
Agreement, the terms of any stock-based compensation award or any other agreement, contract or
arrangement, but the aggregate “present value” of all such parachute payments does not exceed the
lesser of (i) (x) 1.05 multiplied by (y) three (3) times the Executive’s “base amount” or (ii)
$250,000 plus three (3) times the Executive’s “base amount,” then the payments and benefits to be
paid or provided under this Agreement will be reduced to the minimum extent necessary (but in no
event to less than zero) so that no portion of the total payments or benefits due to the Executive
on account of a change in control of the Company, determined after the reduction under this
Agreement, constitutes an “excess parachute payment.” For purposes of this Section 6(h), the terms
“change in control,” “excess parachute payment,” “present value,” “parachute payment,” and “base
amount” have the meanings assigned to them by Section 280G of the Code. The determination of
whether any reduction in such payments or benefits to be provided under this Agreement is required
pursuant to the preceding sentence will be made, if requested by the Executive or the Company, at
the expense of the Company by the Accounting Firm. The fact that the Executive’s right to payments
or benefits may be reduced by reason of the limitations contained in this Section 6(h) will not of
itself limit or otherwise affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be provided under this Agreement
is required to be reduced pursuant to this Section 6(h) and none of the payments is a “deferral of
compensation” within the meaning of and subject to Section 409A (“Nonqualified Deferred
Compensation”), then the Executive will be entitled to designate the payments and/or benefits
to be so reduced prior to the date of payment in order to give effect to this Section 6(h). (The
Company will provide the Executive with all information reasonably requested by the Executive to
permit the Executive to make any such designation. In the event that the Executive fails to make
such designation within ten (10) business days of the Termination Date, the Company may effect such
reduction in any manner it deems appropriate.) If any payment or benefit constitutes Nonqualified
Deferred Compensation or the Executive fails to elect an order, then the reduction shall be
determined in a manner which has the least economic cost to the Executive and, to the extent the
economic cost is equivalent, will be reduced in the inverse order of when payment would have been
made to the Executive, until the reduction is achieved. If, despite a reduction in payments and/or
benefits in accordance with this Section 6(h), the Executive is required, after notice to the
Company pursuant to Section 6(f), to pay an Excise Tax, the Executive shall be paid a Gross-Up
Payment in accordance with Section 6(a), but shall not be entitled to any additional amounts
relating to such reduction in payments and/or benefits, notwithstanding the failure of the
reduction to achieve the goal of avoiding an Excise Tax liability.
(i) Notwithstanding any other provision of this Section 6, the Company may withhold and pay
over to the Internal Revenue Service or any other applicable taxing authority for the benefit of
the Executive all or any portion of the Gross-Up Payment that it determines in good faith that it
is or may be in the future required to withhold, and the Executive hereby consents to such
withholding.
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7. No Mitigation Obligation or Permitted Offset.
The Executive will not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other
benefits from any source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as expressly provided in the
penultimate sentence of Section 4(b) above with respect to the provision of comparable welfare
benefits by a subsequent employer. The Company shall not be permitted to reduce any payment owed
to the Executive under this Agreement by any amount owed, or allegedly owed, to the Company by the
Executive.
8. Arbitration; Payment of Legal Fees.
(a) All claims by the Executive for payments and other benefits under this Agreement shall be
in writing and directed to the Board. Any denial by the Board of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a claim and shall
further allow the Executive to appeal to the Board any decision of the Board within sixty (60) days
after notification by the Board that the Executive’s claim has been denied. Any dispute, claim or
controversy arising out of or relating to this Agreement or the breach hereof shall be settled by
arbitration in the State, City and County of New York in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may be entered in any
court having jurisdiction thereof. The parties hereto agree that any arbitral award may be
enforced against the parties to an arbitration proceeding or their assets wherever they may be
found.
(b) In the event of any dispute, claim or controversy arising out of or in connection with
this Agreement, including without limitation in connection with the Executive’s seeking to obtain
or enforce any right or benefit provided by this Agreement, if the Executive prevails on any of the
material issues involved in any such dispute, claim or controversy, the Company shall pay to the
Executive immediately upon demand all reasonable expenses (including without limitation attorneys’
fees) incurred by the Executive in connection therewith. Any such reimbursement shall be in
addition to the Company’s obligations to pay or reimburse the Executive’s fees and expenses as
provided in Section 6 above.
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9. Successors.
(a) In addition to any obligation imposed by law upon any successor to the Company, the
Company shall 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, by
agreement in form and substance satisfactory to the Executive, to assume expressly 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.
(b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive dies while any amounts are payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his estate.
10. Notices.
All notices or communications required or permitted hereunder will be given in writing by
personal delivery; by confirmed facsimile transmission; by express delivery via any reputable
express courier service; or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed to the parties at the respective addresses set forth below or at
such other address as may be designated in writing by either party to the other in the manner set
forth herein. Notices and communications which are delivered personally, by confirmed facsimile
transmission, or by courier as aforesaid, will be deemed effectively given on the date of delivery;
those delivered by mail as aforesaid will be deemed effectively given upon the fifth (5th) calendar
day subsequent to the postmark date thereof.
If to the Company:
Liz Claiborne, Inc.
Xxx Xxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: General Counsel
Xxx Xxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: General Counsel
If to the Executive:
At the address set forth opposite the Executive’s name
on the signature page hereof or any changed address on the
books and records of the Company from time to time
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11. Governing Law.
This Agreement has been made and will be governed in all respects by the internal laws of the
State of Delaware applicable to contracts made and to be wholly performed within such state
(without regard to principles of conflict of laws) and the parties hereby irrevocably consent to
the jurisdiction of the federal and state courts sitting in the State of Delaware for the purpose
of enforcing this Agreement.
12. Miscellaneous.
(a) No provisions of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Executive and the Company. No
waiver by either party hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
(b) This Agreement, taken together with the provisions of the Severance Benefit Agreement or
other written agreement relating to the Executive, sets forth the entire agreement by and between
the Company and the Executive with respect to the subject matter hereof.
(c) Nothing expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment of the Company or
any subsidiary prior to or following any Change in Control.
(d) The Company may withhold from any amounts payable under this Agreement all federal, state,
city or other taxes as the Company is required to withhold pursuant to any law or government
regulation or ruling.
(e) Subject to Section 13, in the event that the Company refuses or otherwise fails to make a
payment when due and it is ultimately decided that the Executive is entitled to such payment, such
payment shall be increased to reflect an interest factor, compounded annually, equal to the prime
rate in effect as of the date the payment was first due plus five (5) points. For this purpose,
the prime rate shall be based on the rate identified by JPMorgan Chase as its prime rate in New
York City.
(f) The invalidity or unenforceability of any provisions of this Agreement shall not affect
the validity or enforceability of any other provision of this Agreement, which shall remain in full
force and effect.
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(g) This Agreement is personal in nature and neither of the parties hereto shall, without the
consent of the other, assign or transfer this Agreement or any rights or obligations hereunder,
except as provided in Section 9 above. Without limiting
the foregoing, the Executive’s right to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event of any attempted
assignment or transfer by the Executive contrary to this Section 12(g) the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any person other than the
Executive or, in the event of his death, his estate.
(h) This Agreement may be executed in one or more counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same agreement.
13. Section 409A.
(a) It is the parties’ intention that the payments and benefits to which the Executive could
become entitled in connection with the Executive’s employment under this Agreement be exempt from
or comply with Section 409A and the regulations and other guidance promulgated thereunder. The
provisions of this Section 13 shall qualify and supersede all other provisions of this Agreement as
necessary to fulfill the foregoing intention. If the Executive or the Company believes, at any
time, that any of such payment or benefit is not exempt or does not so comply, the Executive or the
Company will promptly advise the other party and will negotiate reasonably and in good faith to
amend the terms of such arrangement such that it is exempt or complies with Section 409A (with the
most limited possible economic effect on the Executive and on the Company) so as to eliminate to
the maximum extent practicable any additional tax, interest and/or penalties that may apply under
Section 409A. The Company agrees that it will not, without the Executive’s prior written consent,
knowingly (or as to which it should have known) take any action, or knowingly (or as to which it
should have known) refrain from taking any action, other than as required by law, that would result
in the imposition of tax, interest and/or penalties upon the Executive under Section 409A, unless
such action or omission is pursuant to the Executive’s written request.
(b) To the extent applicable, each and every payment made pursuant to Section 4 of this
Agreement shall be treated as a separate payment and not as a series of payments treated as a
single payment for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii).
-19-
(c) If the Executive is a “specified employee” (determined by the Company in accordance with
Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the Executive’s “separation from
service” as defined for purposes of Section 409A of the Code and the Treasury Regulations
promulgated thereunder (a “Separation from Service”) with the Company, and if any payment,
benefit or entitlement provided for in this Agreement or otherwise both (i) constitutes
Nonqualified Deferred Compensation and (ii) cannot be paid or provided in a manner otherwise
provided herein without subjecting the Executive to additional tax, interest and/or penalties under
Section 409A, then any such payment, benefit or entitlement that is payable during the first six
(6) months following the Date of Termination shall be paid or provided to the Executive in a
lump sum cash payment (including interest thereon calculated using the prime rate of interest as
reported in the Wall Street Journal on the date which is 5 business days prior to the date of
payment) to be made on the earlier of (x) the Executive’s death and (y) the first business day of
the seventh (7th) month immediately following the Executive’s Separation from Service.
(d) Except to the extent any reimbursement, payment or entitlement under this Agreement does
not constitute Nonqualified Deferred Compensation, (i) the amount of expenses eligible for
reimbursement or the provision of any in-kind benefit (as defined in Section 409A) to the Executive
during any calendar year will not affect the amount of expenses eligible for reimbursement or
provided as in-kind benefits to the Executive in any other calendar year (subject to any lifetime
and other annual limits provided under the Company’s health plans), (ii) the reimbursements for
expenses for which the Executive is entitled shall be made on or before the last day of the
calendar year following the calendar year in which the applicable expense is incurred, (iii) the
right to payment or reimbursement or in-kind benefits may not be liquidated or exchanged for any
other benefit and (iv) in no event shall the Company’s obligations to make such reimbursements or
to provide such in-kind benefits apply later than the Executive’s remaining lifetime (or if longer,
through the 20th anniversary of the Effective Date).
(e) Any payment or benefit paid or provided under Section 4 hereof or otherwise paid or
provided due to a Separation from Service that is exempt from Section 409A pursuant to Treasury
Regulation Section 1.409A-1(b)(9)(v) will be paid or provided to the Executive only to the extent
the expenses are not incurred or the benefits are not provided beyond the last day of the
Executive’s second taxable year following the Executive’s taxable year in which the Separation from
Service occurs; provided, however, that the Company reimburses such expenses no later than the last
day of the third taxable year following the Executive’s taxable year in which the Executive’s
Separation from Service occurs.
(f) It is the parties’ intention that the definition of Good Reason and the
separation-from-service procedures specified in Section 3(b) hereof satisfy the conditions set
forth in Treasury Regulation Section 1.409A-1(n)(2) for a termination for Good Reason to be treated
as an “involuntary separation from service” for purposes of Section 409A.
(g) Any payment or benefit that (i) constitutes Nonqualified Deferred Compensation and (ii) is
paid or distributed solely on account of a Change of Control, whether pursuant to this Agreement or
otherwise, shall be paid or distributed only if such event also constitutes either a “change in the
ownership or effective control of a corporation” or a “change in the ownership of a substantial
portion of the assets of a corporation” in accordance with Treasury Regulation 1.409A-3(i)(5).
-20-
(h) Any dispute resolution payment (including related reimbursable expenses, fees and other
costs) that does not constitute a “legal settlement” in accordance with Treasury Regulation
1.409A-1(b)(11) will be paid by the Company to the Executive not later than the last day of the
Executive’s taxable year following the year in which the dispute is resolved.
(i) Any payment, benefit or entitlement provided for in this Agreement that constitutes
Nonqualified Deferred Compensation due upon a termination of employment shall be paid or provided
to the Executive only upon a Separation from Service.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of
the day and year first above set forth.
| Liz Claiborne, Inc. |
||||
| By: | /s/ Xxxxxxxx Xxxxxx | |||
| Name: | Xxxxxxxx Xxxxxx | |||
| Title: | Senior Vice President, Chief Legal Officer, General Counsel and Secretary |
|||
| Xxxxxxx X. XxXxxx |
||||
| /s/ Xxxxxxx X. XxXxxx | ||||
| Address:
000 Xxxxx Xxxx Xxxxxxxxx, XX 00000 |
||||
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