EXHIBIT 99.3
CHANGE OF CONTROL SEVERANCE AGREEMENT
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This Change of Control Severance Agreement is entered into this 8th day of
April, 1999 between Xxxxxxx Shoe Company Inc., a Delaware corporation (the
"Company"), and Xxxxxxx X. Xxxxx (the "Employee").
R E C I T A L S
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The Company considers it essential and in the best interest of its
stockholders to xxxxxx the continuous employment of key management personnel.
The Company further recognizes that, as in the case of many publicly held
corporations, the possibility of a change of control of the Company may exist
and that such possibility, and the uncertainty and questions which it may raise
among management, may create concerns for, and the distraction of, management
personnel and may even result in departures which might have otherwise not have
taken place, all to the detriment of the Company and its stockholders. The
Company now desires to take steps to reinforce and encourage the continued
attention and dedication of members of the Company's management, including the
Employee, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change of
Control (as defined in Section 3) of the Company.
A G R E E M E N T
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1. Payment of Severance Benefits Upon Change of Control. In the event of
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a Change of Control of the Company during the two-year period from the date of
this Agreement, the Employee shall be entitled to the benefits set forth in
Section 2 (the "Severance Benefits"), but only if:
(a) Employee's employment by the Company or the successor owner of its
business is terminated by the Company or such successor without Cause (as
defined in Section 4) during the two years after the occurrence of the
Change of Control; or
(b) the Employee terminates his employment with the Company or its
successor for Good Reason (as defined in Section 5) during the two years
after the occurrence of the Change of Control.
A termination of the Employee's employment coupled with an offer of
employment by an Affiliate of the Company will not constitute a termination of
employment for purposes of this Agreement unless the terms of employment offered
would constitute Good Reason for the Employee to terminate his employment if
they were imposed by the Company and then only if the Employee does not accept
the offer. An "Affiliate" of the Company is an entity controlling, controlled
by or under common control with the Company as defined in Rule 405 of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The effective date of any termination of employment referred to in (a)
above shall be the date specified by the Company or the successor owner of its
business, and the effective date of any termination of employment referred to in
(b) above shall be the date specified in the notice of termination delivered
pursuant to Section 5 or, if no date is specified in the notice, the date
specified by the Employee orally or, if no such date is specified orally, the
date the Employee ceases working for the Company or the successor owner of its
business on a full time basis.
2. Definition of Severance Benefits.
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2.1 Amount of Benefits. Except as provided in Section 2.2, the Severance
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Benefits referred to in Section 1 shall include and be limited to a lump sum
payment equal to two (2) times the Employee's average annual total compensation
(including, for purposes of computing total compensation under this Section 2.1,
the amount of any bonus and employee benefits accrued during the relevant
period) earned during the five-year period immediately preceding the effective
date of the Change of Control. Payment of the Severance Benefits shall be made
within thirty (30) days after the effective date of the termination of the
Employee's employment.
Notwithstanding the above, in the case of a termination of employment prior
to the occurrence of a Change of Control, the Company shall have no obligation
to pay or provide any Severance Benefits.
2.2 Excise Tax. In the event that any amount or benefit that may be paid
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or otherwise provided to or in respect of the Employee by or on behalf of the
Company or any Affiliate, whether pursuant to this Agreement or otherwise
(collectively, "Covered Payments"), is or may become subject to the tax imposed
under Internal Revenue Code ("Code") Section 4999 ("Excise Tax"), the Company
will pay to the Employee a "Reimbursement Amount" equal to the total of: (A) any
Excise Tax on the Covered Payments, plus (B) any Federal, state, and local
income taxes, employment and excise taxes (including the Excise Tax) on the
Reimbursement Amount, plus (C) the product of any deductions disallowed for
Federal, state or local income tax purposes because of the inclusion of the
Reimbursement Amount in the Employee's adjusted gross income multiplied by the
Employee's combined Federal, state, and local income tax rate for the calendar
year in which the Reimbursement Amount is includible in the Employee's taxable
income, plus (D) any interest, penalties or additions to tax imposed under
applicable law in connection with the Excise Tax or the Reimbursement Amount.
For purposes of this Section 2.2, the Employee will be deemed to pay (Y) Federal
income taxes at the highest applicable marginal rate of Federal income taxation
applicable to individuals for the calendar year in which the Reimbursement
Amount is includible in the Employee's taxable income and (Z) any applicable
state and local income taxes at the highest applicable marginal rate of taxation
applicable to individuals for the calendar year in which such Reimbursement
Amount is includible in the Employee's taxable income, net of the maximum
reduction in Federal income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of the Employee's adjusted gross
income). The payment of a Reimbursement Amount under this Section 2.2 shall not
be conditioned upon the Employee's termination of employment. Notwithstanding
the foregoing provisions of this Section 2.2, if it shall be determined that,
absent this sentence, the Employee is entitled to a Reimbursement Amount, but
that the portion of the Covered Payments that would be treated as "parachute
payments" under Code Section 280G ("Covered Parachute Payments") does not exceed
120% of the greatest amount of Covered Parachute Payments that could be paid
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to the Employee such that the receipt of such Covered Parachute Payments would
not give rise to any Excise Tax (the "Safe Harbor Amount"), then no
Reimbursement Amount shall be paid to the Employee (unless for any reason
Employee is determined to be subject to the Excise Tax after application of the
balance of this sentence) and the Covered Parachute Payments payable under this
Agreement shall be reduced so that the Covered Parachute Payments, in the
aggregate, are reduced to the Safe Harbor Amount. For purposes of reducing the
Covered Parachute Payments to the Safe Harbor Amount, only amounts payable under
this Agreement shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Covered Parachute Payments
to the Safe Harbor Amount, no amounts payable under this Agreement or otherwise
shall be reduced pursuant to this Section 2.2. The Company shall notify the
Employee of any intent to reduce the amount of any Covered Payments in
accordance with this Section 2.2 (which notice, if practicable, shall be given
prior to the occurrence of an event that would give rise to a Covered Parachute
Payment), and Employee shall have the right to designate which of the Covered
Payments shall be reduced and to what extent, provided that the Employee may not
so elect to the extent that, in the determination of counsel to the Company,
such election would cause the Employee to be subject to the Excise Tax.
3. Definition of Change of Control. For purposes of this Agreement, a
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Change of Control shall mean the occurrence of one or more of the following
three events:
(a) any one beneficial stockholder or affiliated group of beneficial
stockholders becomes at any time the beneficial holder of twenty-five
percent (25%) or more of the aggregate voting power of the issued and
outstanding securities of the Company with rights to vote for the
election of directors of the Company;
(b) at any time after any "reorganization" involving the Company, as
such term is defined in section 368 of the Code, or any other type of
reorganization, recapitalization, merger, consolidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who
were directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board of Directors of the Company; or
(c) at any time after a tender offer or exchange offer for voting
securities of the Company (other than by the Company), the individuals
who were directors of the Company immediately prior thereto shall
cease to constitute a majority of the Board of Directors of the
Company.
4. Definition of Termination for Cause. The Employee's employment shall
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be deemed to have been terminated for "Cause" if such employment terminates as a
result of:
(a) the Employee committing fraud, misappropriation or embezzlement in
the performance of duties as an employee of the Company;
(b) the Employee's conviction of a felony involving a crime of moral
turpitude;
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(c) the Employee's willful disregard of any written directive of the
Board of Directors of the Company that is not inconsistent with the
Company's Certificate of Incorporation, by-laws or applicable law;
(d) an act of the Employee constituting willful material breach by the
Employee of any material provision of this Agreement; or
(e) the Employee willfully engaging in any business activity that
materially conflicts with the Employee's duties owed to the Company.
5. Definition of "Good Reason." For purposes of this Agreement the
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Employee shall be deemed to have terminated his employment for "Good Reason" if
such a termination results from the Company's:
(a) failure to maintain the Employee at the position or positions in which
he currently serves at the Company;
(b) engagement in conduct that, against the Employee's volition, would
cause the Employee to commit fraudulent acts or would expose the Employee to
criminal liability;
(c) reduction or attempts to reduce the Employee's annual compensation
from the rate existing on the date hereof;
(d) removal or attempts to remove from the Employee a title or an office;
(e) change or attempts to change significantly the Employee's
responsibilities and/or duties which constitutes a demotion in the judgment of
the Employee (such judgment being exercised in good faith); or
(f) requirement of the Employee to be regularly based at any office or
location that is more than 50 miles from the Company's current headquarters in
Hyde Park (Boston), Massachusetts.
Notwithstanding the foregoing, none of the events referred to in (a)
through (f) above shall constitute Good Reason unless the Employee gives written
notice to the Company of his election to terminate his employment for such
reason within 90 days after he becomes aware of the existence of facts or
circumstances constituting Good Reason. Such notice shall set forth in
reasonable detail the facts and circumstances constituting the Good Reason and,
if the Good Reason is a curable condition, shall provide the Company with 30
days to cure such condition. The notice shall also specify the date when the
termination of employment is to become effective (if the Good Reason is not
curable or is curable but not cured within the 30 days), which date shall be not
less than 60 days and not more than 180 days from the date the notice is given.
6. Employment At Will. The employment relationship contemplated by this
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Agreement is an at will relationship under which either the Employee or the
Company has the right at any time to terminate the employment relationship with
or without Cause or Good Reason and without notice, subject only to the payment
of the Severance Benefits set forth in
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Section 2 to the extent that they become payable under the terms of this
Agreement. Nothing in this Agreement is intended to create a term of employment
for a period of years or otherwise.
7. Mitigation. The Employee shall not be required to mitigate the amount
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of any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any Severance Benefit provided for in this
Agreement be reduced by any compensation earned by Employee as a result of
employment by another employer.
8. Assumption of Agreement. The Company will require any successor
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(whether by purchase of assets, 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 all of the obligations of the Company under this
Agreement (including the obligation to cause any subsequent successor to also
assume the obligations of this Agreement) unless such assumption occurs by
operation of law.
9. Assignment and Successors in Interest. This Agreement is personal to
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the Employee and is not assignable by him. This Agreement shall inure to the
benefit of and be enforceable by the Employee and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees, and is binding upon the successors and assigns of the
Company.
10. Withholding Taxes. Any payments provided for hereunder shall be paid
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net of any applicable withholding required under federal, state or local law.
11. Notice. Any notice required or permitted to be given hereunder shall
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be effective when received and shall be sufficient if in writing and if
personally delivered or sent by certified or registered mail, return receipt
requested, to the party to receive such notice at its or his address set forth
below or at such other address as a party may by notice specify to the other.
If to the Company: If to the Employee:
Xxxxxxx Shoe Company Inc. Xxxxxxx X. Xxxxx
000 Xxxxxxx Xxxxxx 0000 Xxxxx Xxxxxx
X.X. Xxx 00 Xxxxxxxxxx, XX 00000
Xxxxxxxxx (Xxxxxx), XX 00000
Attn: Xxxx X. Xxxxxxx,
Chairman
With a copy to:
Xxxxxxxx X. Xxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
12. Governing Law. This Agreement shall be construed in accordance with
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and governed for all purposes by the laws of The Commonwealth of Massachusetts.
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13. Interpretation. In case any one or more of the provisions contained in
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this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Arbitration of Disputes. Any controversy or claim arising out of, or
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relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of The Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one by the
Employee, and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators, which shall be as provided in this
Section 14. Judgment on the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
15. Legal Fees. Any legal expenses incurred by either party to this
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Agreement in enforcing its or his rights hereunder (including any legal expenses
incurred with respect to any arbitration proceeding pursuant to Section 14
hereof) shall be borne and paid solely by such party. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement, no provision
of this Agreement shall be construed as a limitation on or waiver of any rights
that one party to this Agreement may have to be reimbursed by the other party to
this Agreement for such first party's attorneys' fees pursuant to any statute or
other applicable law.
16. Entire Agreement. This Agreement sets forth the entire agreement of the
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parties with respect to the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, commitments,
communications, representations, or warranties, whether oral or written except
that nothing in this Agreement shall amend or supersede any employment or stock
option agreement in effect on the date hereof.
17. Amendment and Waiver. This Agreement may not be amended, supplemented
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or waived except by a writing signed by the party against which such amendment,
supplement or waiver is to be enforced. The waiver by any party of a breach of
any provision of this Agreement shall not operate to waive, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
18. Counterparts. This Agreement may be executed in two counterparts each
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of which shall be deemed an original but both of which together shall constitute
one and the same instrument.
Upon execution below by both parties, this Agreement will enter into full
force and effect as of April 8, 1999.
XXXXXXX SHOE COMPANY INC.
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By: /s/ Xxxx X. Xxxxxxx /s/ Xxxxxxx X. Xxxxx
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Xxxx X. Xxxxxxx Xxxxxxx X. Xxxxx
President
0000 Xxxxx Xx.
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Xxxxxxxxxx, XX 00000
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(Address)
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