EXHIBIT 10-A-2
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SEVERANCE AGREEMENT
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This Agreement entered into as of the 1st day of July, 1997,
by and between HARTMARX CORPORATION, a Delaware corporation
("Company"), and XXXXXXXXX X. XXXXXXXXXXXXX ("Executive").
WITNESSETH THAT:
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WHEREAS, the Company recognizes 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 the Executive intend to enter into
an 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 date hereof and shall continue in effect through December
31, 1998; provided, however, that commencing on January 1, 1998
and each January 1 thereafter, the Agreement Period shall
automatically be extended for one additional year unless, not
later than July 15 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement;
and further provided, however, that 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.
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 11 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:
(i) 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 transaction described in clause (A)
of paragraph (iii) below; or
(ii) during any period of two consecutive years
(not including any period prior to the date of this
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 66 2/3% 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)
cease for any reason to constitute a majority of the
Board then in office; or
(iii) 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) a merger or consolidation which would
result in 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) 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 (B) a merger or
consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no
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; or
(iv) 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 common stock of the Company 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), (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". Any question
as to the existence of the Disability shall be determined in
accordance with the Company's disability plan.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement,
the Company shall have "Cause" to terminate the Executive's
employment hereunder upon the Executive's:
(i) conviction for the commission of a felony; or
(ii) willful failure to substantially perform his
duties hereunder; or
(iii) willful or grossly negligent conduct that is
demonstrably and materially injurious to the
Company or its affiliates.
Notwithstanding the foregoing, no event shall
constitute "Cause" unless 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.
(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 (i) the provisions of the Company's
bylaws describing, or (ii) 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 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 (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 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.
Notwithstanding the foregoing, no 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.
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 9. 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 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,
except as provided in Section 6(d) below, the Company shall have
no further obligations to Executive 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 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 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, calculated based on the
assumption that the Company achieves its "Step-1"
target level (as defined in the MIP) for such year
(annual bonus based on such assumption, "Step-1
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 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). 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 dates of such
options as set forth in the grant document evidencing
same.
(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 Step-1 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") shall be paid to the
Executive in a lump sum in cash by no later than 10
days following the Date of 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, then, subject to Section
6(d) below, the Company shall have no obligations to Executive
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 compensation plan or program of
the Company, at the time such payments are due, (ii) within ten
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)(1) 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 marginal rate of federal income
taxation 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 interest on the amount of such
repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. 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. 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.
9. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and, if
sent by registered mail, 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.
10. 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.
11. 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.
12. 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.
13. Applicable Law. The provisions of this Agreement shall
be construed in accordance with the laws of the State of
Illinois.
14. 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.
15. Attorney's Fees. The Company also shall pay to the
Executive all legal fees and expenses incurred by the 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. 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.
16. 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.
17. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration, conducted before a panel of three arbitrators in
Chicago, Illinois in accordance with the rules of the American
Arbitration Association then in effect. The Company and the
Executive shall each be entitled to select one arbitrator, with
the two selected arbitrators choosing the third arbitrator.
Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The expense of such arbitration shall be
borne by the Company.
18. 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.
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/ XXXXXXXXX X. XXXXXXXXXXXXX
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XXXXXXXXX X. XXXXXXXXXXXXX
Attest: HARTMARX CORPORATION
/s/ XXXXX X. XXXXXX By: /s/ E.O. HAND
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Xxxxx X. Xxxxxx E.O. Hand, Chairman and Chief
Assistant Secretary Executive Officer
