EXECUTION VERSION
HAMPSHIRE GROUP, LIMITED
1924 Xxxxxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
October 8, 2007
CONFIDENTIAL
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Xxxxxxx X. Xxxxxx
c/o Hampshire Group, Limited
1924 Xxxxxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Dear Xx. Xxxxxx:
This letter will confirm our mutual understanding with respect to your
continuing role as the Interim President and Chief Executive Officer of
Hampshire Group, Limited (the "Company") during the Company's fiscal year ending
December 31, 2007 (the "2007 Fiscal Year"). Except as expressly specified
herein, this letter is not intended to amend that certain employment agreement
between you and Hampshire Designers, Inc., dated as of July 1, 2005 (the
"Employment Agreement") or the letter agreement between you and the Company,
dated March 28, 2007 (the "Change in Control Letter"), which Employment
Agreement and Change in Control Letter shall remain in effect in accordance with
its terms.
1. 2007 Compensation
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(i) Base Salary. In lieu of the base salary payable pursuant to
Section 2 of the Employment Agreement, you shall receive a base salary of Eight
Hundred Thousand Dollars ($800,000) per annum for the 2007 Fiscal Year, payable
in accordance with the Company's normal payroll practices. The base salary shall
be retroactively applied from January 1, 2007.
(ii) Annual Bonus. In lieu of the annual bonus set forth in Section 3
of the Employment Agreement and subject to your continued employment with the
Company through December 31, 2007 (other than as set forth in paragraph 1(iv)
below), you shall be entitled to receive a lump sum cash bonus (the "Annual
Bonus") pursuant to the Company's Management Incentive Bonus Plan in an amount
equal to six percent (6%) of the Company's after-tax corporate profits for the
2007 Fiscal Year (the "2007 Corporate Profits"), as set forth on the Company's
audited financial statements for the 2007 Fiscal Year; provided that,
notwithstanding anything herein to the contrary, for the purpose of calculating
the amount of your Annual Bonus, in computing the 2007 Corporate Profits the
following losses and expenses (in each case, including legal fees) shall be
added back to the 2007 Corporate Profits before the amount of your Annual Bonus
is determined: (a) any losses incurred by the Company during the 2007 Fiscal
Year relating to Xxxxx Xxxxxx and/or Xxxxxx Xxxxxxxxx, (b) any fees and expenses
incurred by the Company during the 2007 Fiscal Year in connection with the Audit
Committee Investigation (as such term is defined in the Form 10-K filed with the
Securities and Exchange Commission ("SEC") on September 14, 2007), restatement
of financial statements, the investigation by the SEC and the U.S. Attorney's
Office, and related matters, which is expected to be included within
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"Investigations, restatement, and related expenses" in the Company's 2007
consolidated statement of income (or such similar line item), and (c) any fees
and expenses incurred by the Company during the 2007 Fiscal Year in connection
with the Special Committee of the Board of Directors of the Company (the
"Board"). Subject to the provisions of paragraph 2 below , the Annual Bonus
shall be paid to you as soon as administratively practicable following the
finalization of the Company's audited financial statements with respect to the
2007 Fiscal Year, but in no event later than March 15, 2008.
(iii) Special Bonus. Subject to your continued employment with the
Company through the earlier of (a) the termination of your employment in
connection with a "Change in Control of the Company" (as such term is defined in
the Change in Control Letter) and (b) December 31, 2007 (other than as set forth
in paragraph 1(iv) below), you shall be entitled to receive a special bonus (the
"Special Bonus") in an amount equal to five hundred thousand dollars ($500,000).
The Special Bonus (plus interest at a rate equal to 5.32% per annum) shall be
payable to you upon the earlier of (a) your "separation from service" (within
the meaning ascribed to such term in Treas. Reg. ss.1.409A-1(h)(1)) from the
Company and (b) the occurrence of a "Change in Control of the Company" (as such
term is defined in the Change in Control Letter) provided that such occurrence
also constitutes a "change in control" under Section 409A of the Internal
Revenue Code of 1986 (the "Code"). Notwithstanding anything in the previous
sentence to the contrary, if the payment is as a result of your separation from
service and you are a "specified employee" (as defined in Section 409A(a)(2)(B)
of the Code), all amounts payable pursuant to this paragraph 1(iii) shall be
delayed until the earlier of (a) the date which is six months following your
separation from service; provided that such separation from service is not a
result of your death, and (b) your death. For the avoidance of doubt, the
deferred amounts shall continue to accrue interest through the date of payment.
(iv) Termination Without Cause, Death or Disability. Notwithstanding
anything herein to the contrary, in the event that your employment is terminated
by the Company without "Cause" (as defined below) or as a result of your death
or permanent disability, in each case on or prior to December 31, 2007, you
shall be entitled to receive an amount equal to the sum of (A) the Special Bonus
and (B) the Annual Bonus, payable as soon as administratively practicable
following such termination, but in no event later than March 15, 2008. For the
avoidance of doubt, no amounts shall be deferred pursuant to paragraphs 1(iii)
or 2(i) of this letter in the event that your employment is terminated by the
Company without Cause or as a result of your death or permanent disability, in
each case on or prior to December 31, 2007. Further, for the avoidance of doubt,
the payment of any amounts referred to in this paragraph 1(iv) shall not
constitute severance or similar termination payments or benefits for purposes of
the Change in Control Letter. Notwithstanding anything in this paragraph 1(iv)
to the contrary, if the payment is a result of your separation from service
(within the meaning ascribed to such term in Treas. Reg. ss.1.409A-1(h)(1)) and
you are a "specified employee" (as defined in Section 409A(a)(2)(B) of the
Code), all amounts payable pursuant to this paragraph 1(iv) shall be delayed
until the earlier of (a) the date which is six months following your separation
from service; provided that such separation from service is not a result of your
death, and (b) your death. For the avoidance of doubt, the amounts payable
pursuant to this paragraph 1(iv) shall accrue interest (at a rate equal to 5.32%
per annum) from the date of termination through the applicable payment date.
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(a) For purposes of this letter only, "Cause" shall exist only if
you (i) breach your fiduciary duty of loyalty owed to the Company or any of its
subsidiaries (ii) are convicted of, or plead guilty or "no contest" to, a
felony, (iii) commit willful misconduct involving acts of moral turpitude or
that otherwise result in, or could reasonably be expected to result in, material
injury to the Company or its subsidiaries, (iv) materially breach the terms of
any agreement between you and the Company or any of its subsidiaries (including,
but not limited to, the Employment Agreement, the Change in Control Agreement
and this letter), (v) materially fail to follow a written instruction of the
Board, or (vi) in carrying out your duties and responsibilities, are guilty of
gross neglect or gross misconduct.
(v) Taxes. All payments payable hereunder will be subject to reduction
for all taxes that the Company is required to withhold by applicable Federal,
state, local or other law.
2. Deferred Compensation
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(i) Deferrals. The Company shall defer any payments to you of your
Annual Bonus pursuant to this letter that, when added to amounts previously paid
to you during the 2007 Fiscal Year, would cause the aggregate amount of
compensation paid to you for the 2007 Fiscal Year to exceed one million dollars
($1,000,000) (such amount to be determined on a pre-tax basis, the "Deferred
Payments"). You shall be fully vested in the Deferred Payments upon the
Company's deferral of such amounts. The Deferred Payments (plus interest at a
rate equal to 5.32% per annum) shall be paid to you in cash within 10 days
following your "separation from service" from the Company (as such phrase is
defined in Treas. Reg. ss.1.409A-1(h)(1)), including upon your retirement from
the Company. Notwithstanding anything in the previous sentence to the contrary,
in the event that you are a "specified employee" (as defined in Section
409A(a)(2)(B) of the Code), all amounts payable pursuant to this paragraph 2
shall be delayed until the earlier of (i) the date which is six months following
your separation from service; provided that such separation from service is not
a result of your death, and (b) your death. For the avoidance of doubt, the
Deferred Payments shall continue to accrue interest through the date of payment.
(ii) Rabbi Trust. Notwithstanding anything herein to the contrary, all
amounts deferred pursuant to paragraphs 1(iii) or 2(i) above shall be held for
your benefit in a grantor trust within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Code (the "Rabbi Trust") which
complies with the requirements of Internal Revenue Service Procedure 92-64 and
Section 409A of the Code. The Rabbi Trust shall be in form and substance
reasonably satisfactory to you and to the Company. All payments of amounts
deferred pursuant to paragraphs 1(iii) or 2(i) above shall be made by the
trustee out of the funds deposited into the Rabbi Trust and, after such payment
in full by the trustee, the Company shall have no additional obligations with
respect to the payment of the deferred amounts.
(iii) For the avoidance of doubt, the payment of any amounts deferred
pursuant to paragraphs 1(iii) or 2(i) above shall not constitute severance or
similar termination payments or benefits for purposes of the Change in Control
Letter.
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3. Miscellaneous
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(i) This letter and any disputes arising in connection with your
employment with the Company shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflict of
law principles thereof.
(ii) Your rights under this letter shall be no greater than the rights
of a general, unsecured creditor of the Company and you shall not have any legal
or equitable right, interest or claim in or to any property or asset of the
Company or the Rabbi Trust. Your rights to payment pursuant to this letter shall
not be transferred, assigned, anticipated or otherwise encumbered by you (except
by will or by operation of the laws of intestate succession) and no amount
payable hereunder shall be subject to seizure by any of your creditors by a
proceeding at law or at equity, nor shall such amounts be transferable by
operation of law in the event of your bankruptcy or insolvency.
[Signatures to appear on the following page.]
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Please confirm the above agreement between you and us by signing and
returning to us a copy of this letter agreement.
Sincerely,
HAMPSHIRE GROUP, LIMITED
By: /s/ Xxxxx X. Xxxxxx
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Name: Xxxxx X. Xxxxxx
Title: Vice President, General Counsel and
Secretary
HAMPSHIRE DESIGNERS, INC.
By: /s/ Xxxxx X. Xxxxxx
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Name: Xxxxx X. Xxxxxx
Title: Secretary
Accepted and Agreed as of October 8, 2007:
XXXXXXX X. XXXXXX
/s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
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