EMPLOYMENT AGREEMENT
The parties to this Employment Agreement are The Warnaco Group, Inc. (by
itself, 'Warnaco' and together with its divisions, subsidiaries and affiliates,
the 'Company'), a Delaware corporation, with its office and principal place of
business currently located at 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 and
Xxxxxxx Xxxxxxx (the 'Employee') an individual currently residing at
[Home Address].
BACKGROUND
Warnaco desires to employ the Employee on a full-time basis as its Chief
Restructuring Officer and the Employee desires to be so employed by Warnaco, all
upon the terms and conditions hereinafter set forth.
1. Employment and Duties. During the Employment period (as hereinafter
defined), the Employee shall serve as Chief Restructuring Officer of Warnaco.
The duties and responsibilities of the Employee shall include such duties and
responsibilities as are typically assigned to a chief restructuring officer and
shall include, in any event the following:
a. Oversee, with the approval of the Chief Executive Officer of Warnaco
(the 'CEO') and the Board of Directors of Warnaco (the 'Board'), all
restructuring and refinancing related efforts of the Company,
including
i. the activities of all professionals retained to assist in the
marketing and sale of assets, the recapitalization of the
Company or otherwise retained as part of the restructuring
efforts;
ii. the preparation and presentation of reports and other general
communications with the Company's creditors and shareholders;
and
iii. at the Board's request; the development of a restructuring plan
for the Company;
b. Assist the CEO and other senior management in the preparation of an
operating plan and cash flow forecast;
c. Assist the CEO and other senior management in the identification of
cost reduction opportunities and working capital opportunities;
d. Assist the CEO and other senior management with other operational
issues as requested; and
e. Engage in such other activities as are approved by the Board or the
CEO and are consistent with the duties of a chief restructuring
officer.
The Employee shall perform faithfully the duties and responsibilities
referred to above to the best of his ability, devoting not less than 85% of his
time to his responsibilities as Chief Restructuring Officer.
2. Employment Period.
a. Term. The employment period shall begin on April 30, 2001 (the
'Effective Date') and shall continue thereafter throughout the
period ending on October 31, 2002 (the 'Expiration Date') unless
sooner terminated pursuant to the provisions of this Agreement
(the 'Employment Period').
b. Early Termination Generally. The Employee's employment may be
terminated by either the Company without Cause (as hereinafter
defined) by giving 30 days written notice to the Employee or the
Employee by giving 90 days written notice to the Company. The
Employee's employment shall terminate in the event of the
Employee's death.
c. Early Termination for Cause. The Company may immediately terminate
the Employee's employment for Cause by giving notice in writing of
such termination. For all purposes under this Agreement, the term
'Cause' shall mean (i) a breach by Employee of any of his material
obligations under this Agreement which is not cured within 30 days
of the Company's having provided written notice thereof to the
Employee; or (ii) the Employee engaging in willful misconduct
which is injurious to the Company.
d. Early Termination for Good Reason. The Employee may immediately
terminate the Employee's employment prior to the Expiration Date
for Good Reason (as hereinafter defined). For all purposes of this
Agreement, the term 'Good Reason' means (i) a breach by the
Company of its material obligations under this Agreement which has
not been cured within 30 days of the Employee having given written
notice to the Company thereof; (ii) The Company assigns the
Employee any duties or responsibilities inconsistent with the
scope of duties or responsibilities associated with Employee's
title or position as set forth in Section I of this Agreement or
requires the Employee to report to anyone other than the CEO or
the Board; or (iii) the Company engaging in willful misconduct
which is injurious to the Employee.
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3. Place of Employment. The Employee's services shall be performed at the
Company's principal offices in New York City. The parties acknowledge, however,
that the Employee may be required to travel in connection with the performance
of his duties hereunder.
4. Base Salary; Advance. For all services to be rendered by the Employee
pursuant to this Agreement, the Company shall pay the Employee during the
Employment Period a base salary (the 'Base Salary') at the rate of $175,000 per
month (prorated as necessary). In the event the Employee is unable to perform
his duties as a Chief Restructuring Officer due to illness or disability for a
period of thirty (30) consecutive days or more, the Employee and the Company
shall negotiate in good faith a reduced Base Salary for such period. The Base
Salary shall be paid in periodic installments in accordance with the Company's
regular payroll practices. The Company shall promptly remit to A&M an advance of
$100,000, which shall be held by Employee and credited against any amounts due
at the termination of the Employment Period and returned upon the satisfaction
of all the Company's obligations hereunder.
5. Incentive Compensation. The Employee shall be entitled to receive
incentive compensation equal to 90% of the cash value of the annual bonus,
including any incentive based bonus, discretionary bonus (not based principally
on asset sales or a restructuring), and supplemental incentive plan bonus, paid
to the highest paid senior officer of the Company (adjusted pro rata for the
number of months the Employee has acted as Chief Restructuring Officer), payable
on the same terms and at the same time as to such officer, but in any event not
less than 120 days after the Company's fiscal year.
6. Restructuring Compensation. Upon the occurrence of a Trigger Event (this
term and other defined terms used in this subsection are defined below), the
Employee shall be entitled to a restructuring fee (the 'Restructuring Fee')
equal to five percent (5%) of the Improvement in Value; provided, however,
that in no event shall the Restructuring Fee shall be less than $3 million; and
provided, further, that any amounts payable as Incentive Compensation under
Section 5 shall be credited against the amounts that become payable under this
section.
In the event a Restructuring Fee becomes payable because of the
occurrence of the events described in clause (i) or (ii) of the definition of
Trigger Event, the Restructuring Fee shall be paid to the Employee immediately
upon the occurrence of the Trigger Event. That component of the Restructuring
Fee based on Aggregate Consideration that is contingent upon the realization of
future financial performance (e.g., an earnout or similar provision) shall be
paid by the Company to the Employee promptly upon the receipt of such Aggregate
Consideration by the Company or its shareholders (including holders of options,
warrants, stock appreciation rights, convertible securities and similar
securities of the Company). That component of the Restructuring Fee that is
based on Aggregate Consideration that is deferred (including without limitation
any Aggregate Consideration held in escrow) shall be valued at the total stated
amount of such consideration without applying a discount thereto and shall be
paid by the Company to the Employee promptly
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upon the occurrence of the Trigger Event; provided that the portion of the
Restructuring Fee payable on account of amounts held in escrow shall not become
payable until released from escrow to (or for the benefit of) the Company.
In the event a Restructuring Fee becomes payable because of the occurrence of
the events described in clause (iii) or (iv) of the definition of Trigger Event,
80% of the Restructuring Fee shall be paid to the Employee immediately upon the
occurrence of the Trigger Date. The remaining 20% of the Restructuring Fee shall
be paid to the Employee 225 days following the Trigger Date (the 'Final Payment
Date'). During the 225 day period prior to the Final Payment Date, the Employee
and the Company shall, acting in good faith, recalculate the Restructuring Fee
based on the actual Operating EBITDA achieved during the six-month period
following the Trigger Date and the amount due the Employee on the Final Payment
Date shall be adjusted accordingly; provided, however, that in no event shall
any downward adjustment of the Restructuring Fee due the Employee be greater
than the 20% holdback described above. In the event the Company and the Employee
shall be unable to agree on the recalculation of the Restructuring Fee, each of
the parties agrees to submit the issue to binding arbitration under the
Commercial Arbitration Rules of the American Arbitration Association in the
State of New York, except that each party shall bear its (or his) own expenses.
For the purposes of this Section 6, the following terms shall have the following
meanings:
'Trigger Event' shall mean the earliest to occur of (i) the consummation
of (or if earlier, the execution of definitive documentation for) a
sale, lease, transfer or other disposition of all or substantially all
the assets of the Company in one or more transactions (a 'Sale of
Assets'); (ii) the merger or consolidation of the Company with or into
any other entity or any combination, including by way of joint venture,
of all or substantially all the Company's assets, in each case in one or
more transactions (or, if earlier, the execution of definitive
documentation for any such transactions); (iii) a substantial
restructuring of (or, if earlier, the execution of definitive
documentation for the substantial restructuring of) the Company's debt,
either through a restructuring or refinancing of the existing bank debt,
new investments, sales of assets combined with a material modification
of debt documents, or a combination of any or all of the foregoing, in
one or more transactions the effect of which is to provide the Company
with an amount of liquidity and flexibility which is anticipated to be
sufficient to allow it to operate without default under the Company's
operating plan to be formulated by senior management under the Chief
Restructuring Officer's supervision; and (iv) the expiration of the
Employee's employment upon the conclusion of the Employment Period (as
defined in Section 2 above) or its termination by the Company without
Cause or by the Employee with Good Reason. In the event the Trigger
Event occurs under clause (i), (ii) or (iii) upon the execution of
definitive documentation for the transaction(s) giving rise to the
Trigger Event, then notwithstanding
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anything herein to the contrary, the Restructuring Fee earned upon such
Trigger Event shall become payable upon consummation of the transactions
contemplated by the definitive documentation (regardless of whether the
Employee's employment shall have been terminated prior to such
consummation), not upon execution of such documentation.
'Improvement in Value' shall mean either (a) in the event Improvement
in Value is being calculated because of events described in clause (i)
or (ii) of the definition of Trigger Event, (x) the Aggregate
Consideration plus, in the event the transaction(s) giving rise to the
Trigger Event involves less than all the assets, to the extent positive,
(y) the sum of (I) Debt Paydowns (net of those cash payments reducing
debt made with the proceeds of the transaction(s) giving rise to the
Trigger Event); (II) the product of seven (7) times the Trigger Date
EBITDA for those assets not involved in the transaction(s) giving rise
to the Trigger Event; and (III) the Company's cash and cash equivalents
not being transferred as part of the transaction(s) giving rise to the
Trigger Event; minus (z) $1,100,000,000; or (b) in the event Improvement
in Value is being calculated because of events described in clause (iii)
or (iv) of the definition of Trigger Event, to the extent positive, (i)
Debt Paydowns plus (ii) the product of seven (7) times the Trigger Date
EBITDA plus (iii) the Company's cash and cash equivalents minus (iv)
$1,100,000,000.
'Debt Paydowns' shall mean the sum of cash payments made during the
Applicable Period under the Company's debt and receivables facilities
that permanently reduce the other parties' commitments under such
facilities plus the estimated net proceeds from the sale, lease,
transfer or other disposition of assets that are the subject of fully
executed sale agreements that have not yet closed plus (or minus) the
improvement or deterioration in the Company's working capital compared
to its working capital as of May 1, 2001, in each case as reflected in
the Company's revolving lines of credit, adjusted for seasonal
considerations in a manner to be agreed upon in good faith by the Chief
Executive Officer of the Company and the Chief Restructuring Officer.
'Aggregate Consideration' shall mean the total amount of all cash,
securities, contractual arrangements (including any lease arrangements
or put or call agreements) and other properties paid or payable,
directly or indirectly in connection with a Trigger Event (including
without limitation, amounts paid to holders of any warrants, stock
purchase rights or convertible securities of the Company and to holders
of any options or stock appreciation rights issued by the Company,
whether or not vested). Aggregate Consideration shall also include the
amount of any short-term debt and long-term liabilities of the Company
(including the principal amount of any indebtedness for borrowed money
and capitalized leases and the full amount of any off-balance sheet
financings) (x) repaid or retired in
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connection with or anticipation of the Trigger Event or (y) existing on
the Company's balance sheet at the time of the Trigger Event (if such
Trigger Event takes the form of a merger, consolidation or a sale or
issuance of stock or partnership interests) or assumed in connection
with a Trigger Event (if such Trigger Event takes the form of a Sale of
Assets or a joint venture). For purposes of calculating the amount of
revolving credit debt in the preceding sentence, the arithmetic mean of
the amount of revolving credit debt outstanding on the last day of each
month during the 12 months preceding the closing of the Trigger Event
shall be used. In the event such Trigger Event takes the form of a Sale
of Assets, Aggregate Consideration shall include (i) the value of any
current assets not purchased, minus (ii) the value of any current
liabilities not assumed. In the event such Trigger Event takes the form
of a recapitalization, restructuring, spin-off, split-off or similar
transaction, Aggregate Consideration shall include the fair market value
of (i) the equity securities of the Company retained by the Company's
security holders in exchange for or in respect of securities of the
Company retained by the Company's security holders following such
Trigger Event and (ii) any securities received by the Company's security
holders in exchange for or in respect of securities of the Company
following such Trigger Event (all securities received by such security
holder being deemed to have been paid to such security holder on account
of such Trigger Event). The value of securities that are freely tradable
in an established public market will be determined on the basis of the
last market closing price prior to the consummation of the Trigger
Event. The value of securities, lease payments, and other consideration
that are not freely tradable on an established market, or if the
consideration utilized consists of property other than securities, the
value of such property shall be the fair market value thereof as
determined in good faith by the Employee and agreed to by the Company;
provided, however, that all debt securities, except zero coupon or deep
discount securities, shall be valued at their stated principal amount
without applying a discount thereto.
'Applicable Period' shall mean the period from the effective date hereof
until the Trigger Date.
'Trigger Date' shall mean the date on which the Trigger Event occurs.
The 'Trigger Date EBITDA' shall mean actual Operating EBITDA for the
six-month period ending prior to the Trigger Date plus projected
Operating EBITDA for the six-month period following the Trigger Date
(including the month in which the Trigger Date occurs). In the event
Operating EBITDA is being calculated because of the restructuring
described in clause (iii) of the definition of Trigger Event, the
projected Operating EBITDA shall be based on the Company's operating
plan used in connection with such restructuring. In the event Operating
EBITDA is being calculated because of the Triggering Event described in
clause (iv), the
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projected Operating EBITDA shall be based on projections developed by
the Company and the Chief Restructuring Officer acting in good faith.
'Operating EBITDA' with respect to any period shall mean the EBITDA
(earnings before interest, taxes, depreciation and amortization) net of
other income (expense); extraordinary items; gains or losses on the sale
of assets; fees and expenses related to the amendment, restatement,
repayment or refinancing of debt; any deduction for minority interest
expense; expenses of litigation of any kind (including administrative
proceedings); all professional fees, fines, damages and settlement
payments; restructuring charges (including, without limitation,
professional fees and expenses, employee severance and incentive
payments, costs of operations discontinued or identified to be
discontinued and cure payments for assumed contracts or leases as well
as any other costs that should not be assigned to on-going operations);
plus estimated cost savings anticipated but not yet realized from cost
reduction programs that have already been implemented; less any
contribution to EBITDA of assets that are the subject of fully executed
sale agreements that have not yet closed; in each case, for such period.
7. Expenses. The Employee shall be entitled to prompt reimbursement for all
reasonable, ordinary and necessary travel, entertainment, and other expenses
incurred by the Employee during the Employment Period in the performance of his
duties and responsibilities for the Company under this Agreement and for the
reasonable fees and expenses of his counsel incurred in connection with the
preparation, negotiation and approval of this Agreement.
8. Termination Benefits. In the event the Employee's employment terminates
prior to the end of the Employment Period, then the Employee shall be entitled
to receive severance and other benefits as follows:
a. Termination without Cause or for Good Reason. If, during the
Employment Period, the Company terminates the Employee's
employment other than for Cause, or if the Employee terminates
his employment for Good Reason, then, in lieu of any severance
benefits to which the Employee may otherwise be entitled under
any of the Company's severance plans or program, the Employee
shall be entitled to receive upon such termination or resignation
an amount equal to his Base Salary times the lesser of twelve
(12) or the number of months (including fractions thereof)
remaining until the Expiration Date. In addition, the Employee
shall be entitled to receive the Restructuring Compensation and
any amounts of Base Compensation earned for the period to such
date and to the reimbursement of expenses incurred prior to such
date to the extent such expenses are
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reimbursable under this Agreement. In the event the employment
is terminated because of the death of the Employee, the
Beneficiary shall be entitled to receive the Restructuring
Compensation and Base Compensation earned for the period prior
to the Employee's death and to the reimbursement of any expenses
incurred prior to the Employee's death to the extent such
expenses are reimbursable under this Agreement. Upon any
termination described in this Section 8(a), in the event a
Trigger Event occurs under either clause (i), (ii) or (iii) of
the definition of that term within six months of such
termination, then as a part of the Restructuring Compensation
the Employee (or his Beneficiary) is entitled to receive
hereunder, the Employee (or his Beneficiary) shall be entitled
to receive promptly upon the occurrence of such Trigger Event an
amount equal to the excess, if any, of (x) an amount equal to
the Restructuring Compensation calculated based on such
subsequent Trigger Event over (y) the amount of Restructuring
Compensation which would or has already become due and payable
to the Employee before application of this provision, if any.
b. Other Termination. In the event the Company terminates the
Employee's employment for Cause, or the Employee terminates his
employment without Good Reason, then the Employee shall not be
entitled to the severance payment described in Section 8(a) and
shall not be entitled to receive any Restructuring Compensation.
The Employee will be entitled to receive all compensation
accrued through the effective date of the termination or
resignation, as the case may be, and reimbursement of expenses
incurred prior to such date to the extent such expenses are
reimbursable under this Agreement.
9. Confidentiality. The Employee shall keep as confidential all non-public
information received from the Company in conjunction with his employment,
except: (i) as requested by the Company or its legal counsel; (ii) as required
by legal proceedings or (iii) as reasonably required in the performance of his
duties, including in communications with the Company's shareholders, affiliates
and creditors, or their advisors. At the conclusion of his employment, if
requested by the Company, the Employee shall return all such information in his
possession to the Company.
10. Certain Conduct. During and after the Employment Period, the Company
agrees to refrain and the Employee agrees to refrain, from making any
statements of a defamatory or disparaging nature regarding the other party, the
Company's officers, directors, personnel or products or the Employee's services,
except, in each case, in such party's professional capacity or,
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in, the case of the Employee, in connection with the performance of his duties
hereunder or in connection with litigation arising out of or relating to this
Agreement.
11. Indemnification. The Company shall indemnify the Employee as provided
herein or, to the extent more favorable to the Employee, to the full extent
permitted by Delaware law on the date of this Agreement. The Employee shall be
entitled to the benefit of the most favorable indemnities the Company provides
to its officers or directors, whether under the Company's bylaws, its
certificate of incorporation, by contract or otherwise and no reduction or
termination in any of the benefits provided under any such indemnities shall
affect the benefits provided to the Employee. The Company shall also use
commercially reasonable efforts (which shall include the payment of amounts
which the Company determines in its good faith are reasonable) to arrange to add
the Employee as an additional insured party under the Company's existing
director and officer liability insurance policy. The Company shall also use
commercially reasonable efforts (which shall include the payment of amounts
which the Company determines in its good faith are reasonable) to arrange to
maintain any such insurance coverage for a period of two years following
termination of the Employee's employment. Termination of this Agreement shall
not affect any of these provisions, which shall remain in full force and effect.
The provisions of this section are in the nature of contractual obligations and
no change in applicable law or the Company's charter, bylaws or other
organizational documents or policies shall affect Employee's rights hereunder.
12. Successors and Assigns. This Agreement and all rights under this
Agreement shall be binding upon and inure to the benefit of, and be enforceable
by, the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors
and assigns. This Agreement is personal in nature, and neither of the parties to
this Agreement shall, without the prior written consent of the other, assign or
transfer this Agreement or any one or more of his or its rights under this
Agreement or delegate any one or more of his or its duties under this Agreement,
to any other person or entity, except that Employee may assign his right to
receive payments or benefits hereunder. In any event, no assignment of rights,
or delegation of obligations under this Agreement shall relieve the assigning or
delegating party of its obligations hereunder. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Corporation, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to Employee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Corporation would be
required to perform if no such succession had taken place. If the Employee
should die While any amounts are still payable, or any benefits are still
required to be provided, to the Employee hereunder, all such amounts or
benefits, unless otherwise provided herein, shall be paid or provided in
accordance with the terms of this Agreement to the Employee's devisee, legatee,
or other designee or, if there be no such designee, to the Employee's estate (in
each case, a "Beneficiary").
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13. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Employee's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
14. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Xxxxxxx Xxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
If to the Company: The Warnaco Group, Inc.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxxxxx, Esq.
General Counsel
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other parties in writing in accordance
with this section. Such notices or other communications shall be effective upon
delivery or three days after they have been mailed as provided for above.
15. Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof and supersedes
all prior or contemporaneous agreements whether written or oral. No waiver,
alteration, or modification of any of the provisions of this Agreement shall be
binding unless in writing and signed by duly authorized representatives of the
parties hereto.
16. Waiver. Failure or delay on the part of either party hereto to enforce
any right, power, or privilege hereunder shall not be deemed to constitute a
waiver thereof. Additionally, a waiver by either party or a breach of any
promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent breach or promise by such other party.
17. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision. or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in
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such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
18. Headings. The headings of the sections contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
19. Applicable Laws. This Agreement shall be governed by and construed in
accordance with the internal substantive laws, and not the choice of law rules,
of the State of New York.
20. Counterparts. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more than one party
hereto, each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the Company and the Employee has executed this
Agreement, in the case of the Company by its duly authorized officer, as of
June 11, 2001.
THE WARNACO GROUP, INC., for itself and its
divisions, subsidiaries and affiliates
By: /s/ Xxxxx Xxxxxxx
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Name: Chairman/CEO
Title:
EMPLOYEE
/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx Xxxxxxx
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