AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement, made and entered into as of August 11, 2005 by and between
The Warnaco Group, Inc., a Delaware corporation (together with its subsidiaries,
divisions and affiliates, the "Company"), and Xxxxx Xxxxxxxx ("you"), amends the
letter agreement relating to your employment with the Company dated as of April
21, 2004 (the "Employment Agreement"). Except as otherwise stated herein, all
definitions used in this Amendment shall have the meaning ascribed to such term
in the Employment Agreement.
In consideration of the premises contained herein and for other good and
valuable consideration, the receipt of which is mutually acknowledged, the
Company and you agree as follows:
1. Paragraph 3 of the Employment Agreement is amended by adding a new
clause (d) and (e) as follows:
"d. During the Term beginning with fiscal year 2005, provided you are
employed by the Company, you shall be entitled to an annual award
with an aggregate grant date value equal to 10% of the sum of
Base Salary plus Annual Bonus as defined in this paragraph 3(d)
if you will be less than age 60 by the end of the applicable
fiscal year and 13% of such amount if you will be age 60 or older
by the end of the applicable fiscal year ("Supplemental Award"),
with the first such award being made no later than 60 days after
the Effective Date. For this purpose, Base Salary shall be the
Base Salary paid to you for the fiscal year prior to the award
year and Annual Bonus shall be the annual bonus awarded to you by
the Board for such fiscal year. The Supplemental Award shall not
be awarded to you until after the determination by the Board of
your annual bonus for the prior fiscal year (but in no event
later than 60 days thereafter for any award made after fiscal
year 2005) and 50% of the value of the Supplemental Award shall
be awarded in the form of restricted shares pursuant to the
applicable Stock Incentive Plan ("Career Shares") and 50% shall
be awarded in the form of a credit to a bookkeeping account
maintained by the Company for your account (the "Notional
Account"). Any Career Shares awarded hereunder shall be governed
by the applicable Stock Incentive Plan and, if applicable, any
award agreement. For purposes of this paragraph 3(d), each Career
Share shall be valued at the closing price of a share of the
Company's common stock ("Share") on the date that the
Supplemental Award is made. For the Notional Account, the Company
shall select the investment alternatives available to you under
the Company's 401(k) plan. The balance in the Notional Account
shall periodically be credited (or debited) with the deemed
positive (or negative) return based on returns of the permissible
investment alternative or alternatives under the Company's 401(k)
plan as selected in advance by you (and in accordance with the
applicable rules of such plan or investment alternative) to apply
to such Notional Account, with such
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deemed returns calculated in the same manner and at the same
times as the return on such investment alternative(s). The
Company's obligation to pay the amount credited to the Notional
Account, including any return thereon provided for in this
paragraph 3(d), shall be an unfunded obligation to be satisfied
from the general funds of the Company. Except as otherwise
provided in paragraphs 6 or 8 below or the applicable Stock
Incentive Plan and provided that you are employed by the Company
on such vesting date, any Supplemental Award granted in the form
of Career Shares will vest as follows: 50% of the Career Shares
will vest on the earlier of your 62nd birthday or upon your
obtaining 15 years of "Vesting Service" and 100% of the Career
Shares will vest on the earliest of (i) your 65th birthday, (ii)
upon your obtaining 20 years of "Vesting Service" or (iii) 10th
anniversary of the date of grant. Except as otherwise provided in
paragraphs 6 or 8 below, and provided that you are employed by
the Company on such vesting date, any Supplemental Award granted
as a credit to the Notional Account (as adjusted for any returns
thereon) ("Adjusted Notional Account")) shall vest as follows:
50% on the earlier of your 62nd birthday or upon your obtaining 5
years of "Vesting Service" and 100% on the earlier of the your
65th birthday and upon your obtaining 10 years of "Vesting
Service". For purposes of this paragraph 3(d), "Vesting Service"
shall mean the period of time that you are employed by the
Company as an executive officer. Subject to paragraph 27 hereof,
upon vesting the Career Shares will be delivered to you in the
form of Shares. The vested balance in the Adjusted Notional
Account shall not be distributed to you until you cease to be an
employee of the Company and, at such time, shall only be
distributed at the earliest time that satisfies the requirements
of this paragraph 3(d). Except as otherwise provided in
paragraphs 6 or 8 hereof, if your employment is terminated for
any reason, any unvested Supplemental Awards (whether in the form
of Career Shares or the Adjusted Notional Account) shall be
forfeited and any vested balance in the Adjusted Notional
Account, subject to paragraph 27 hereof, shall be paid to you in
a cash lump-sum payment immediately following your "separation
from service," as defined by Section 409A(a)(2)(A)(i) of the
Internal Revenue Code of 1986, as amended (the "Code"), with the
Company; provided, however, that, except in the case of your
death, if at the time of such separation from service you are a
"specified employee," as defined in Section 409A(a)(2)(B)(i) of
the Code, such distribution shall not be made until at least six
months after the date of such separation from service; provided,
further, that if your employment is terminated due to Disability
and such Disability satisfies the requirements of Section
409A(a)(2)(C) of the Code, then such distribution may be made
upon termination without regard as to whether you were a
"specified employee" at such time. The provisions of this
paragraph 3(d) shall survive expiration or termination of the
Term.
e. If you remain actively employed with the Company until the fifth
anniversary of the date you commenced employment with the Company
then following termination of your employment with the Company
(other than for Cause), the Company will pay you an amount
annually in equal monthly
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installments equal to $75,000 minus the "Value of the
Supplemental Awards," with the first installment being paid
within 30 days of your date of termination until the earlier to
occur of (i) your death or (ii) the fifteenth anniversary of your
date of termination; provided that if at the time you terminate
employment you are a "specified employee," as defined in Section
409A(a)(2)(B)(i) of the Code, the first such payment shall not be
made until at least six months after your date of termination
and, at such time, you shall receive a lump-sum amount equal to
the amount of the installments that would otherwise have been
made during this six-month period. Notwithstanding the foregoing,
the amount payable hereunder shall be pro-rated for the year of
termination and the year in which you die based on the number of
days that elapsed in such year after your date of termination or
prior to your date of death, as the case may be. The "Value of
the Supplemental Awards" shall equal (x) the number of vested
Career Shares as of your date of termination multiplied by the
applicable "Share Price" plus (y) the Adjusted Notional Account
balance as of your date of termination, (z) divided by 9.75. For
purposes of this paragraph 3(e), "Share Price" shall mean (a) for
any vested Career Shares for which the Share was sold prior to
the date you terminate employment, the sale price for such Share,
with such price increased by 7/12ths of 1% per month from the
date of sale to your date of termination and (b) for any vested
Career Share for which the Share has not been sold prior to your
date of termination, the closing price of the Share on the date
you terminate employment. The provisions of this paragraph 3(e)
shall survive expiration or termination of the Term."
2. Paragraph 6 of the Employment Agreement is amended by adding a new
clause (e) as follows:
"e. Immediate vesting as of the Date of Termination of 50% of any
previously granted Supplemental Award that remains unvested as of
the Date of Termination, payable in accordance with paragraph
3(d) above."
3. Paragraph 8 of the Employment Agreement is amended as follows:
(a) Deleting paragraph 8(b) in its entirety and replacing it with the
following:
"b. Payment of an amount equal to 2 times the sum of (a) Base
Salary plus (b) Target Bonus, payable in a lump sum as soon
as practicable following the Date of Termination (but in no
event later than 60 days following such date)."
(b) Deleting paragraph 8(c) in its entirety and replacing it with the
following:
"c. A pro-rata Target Bonus for the year of termination,
determined by multiplying the Target Bonus by a fraction,
the numerator of which is the number of days that you were
employed by the Company during the year in which the Date of
Termination occurs and the
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denominator of which is 365, payable in a lump sum as soon
as practicable following the Date of Termination (but in no
event later than 60 days following such date)."
(c) Amending paragraph 8(d) by adding the following at the end of
such paragraph:
"and immediate vesting as of the Date of Termination of all other
outstanding equity awards (other than Career Shares), with any
stock options granted on or after the Amendment Date remaining
exercisable for 24 months following the Date of Termination or
the remainder of the option term, if shorter."
(d) Renumbering paragraph 8(e), 8(f) and 8(g) to be paragraphs 8(f),
8(g) and 8(h), respectively, and amending the new paragraph 8(f)
by replacing "18" with "24".
(e) Adding a new paragraph 8(e) as follows:
"e. Immediate vesting as of the Date of Termination of any
previously granted Supplemental Award, payable in accordance
with paragraph 3(d) above."
4. Paragraph 23 of the Employment Agreement is amended by adding the
following provision at the end of such paragraph:
"Notwithstanding the foregoing, in 2005, the Company shall have the
right to modify any provision of this Agreement (or, if requested by
you, shall make such modification), including, without limitation,
paragraph 3 and paragraphs 5 through 9 hereof, if, and only to the
extent that, such modification shall be required, in the reasonable
opinion of the Company's and/or your counsel, to comply with Section
409A of the Code or any regulations or similar guidance issued by the
Treasury or the Internal Revenue Service with respect to Code Section
409A."
5. A new paragraph 28 is added to the Employment Agreement as follows:
"28. The Company hereby agrees during, and after termination of, your
employment to indemnify you and hold you harmless, both during
the Term and thereafter, to the fullest extent permitted by law
and under the certificate of incorporation and by-laws of the
Company against and in respect of any and all actions, suits,
proceedings, claims, demands, judgments, costs, expenses
(including reasonable attorneys' fees), losses, amounts paid in
settlement to the extent approved by the Company, and damages
resulting from your good faith performance of your duties as an
officer or director of the Company or any affiliate of the
Company. The
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Company shall reimburse you for expenses incurred by you in
connection with any proceeding hereunder upon your written
request for such reimbursement and your submission of the
appropriate documentation associated with these expenses. Such
request shall include an undertaking by you to repay the amount
of such advance or reimbursement if it shall ultimately be
determined that you are not entitled to be indemnified hereunder
against such costs and expenses. The Company shall use
commercially reasonable efforts to obtain and maintain directors'
and officers' liability insurance covering you to the same extent
as the Company covers its other officers and directors."
6. A new paragraph 29 is added to the Employment Agreement as follows:
"29.
a. If any amount, entitlement, or benefit paid or payable to you or
provided for your benefit under this agreement and under any
other agreement, plan or program of the Company (such payments,
entitlements and benefits referred to as a "Payment") is subject
to the excise tax imposed under Section 4999 of the Code or any
similar federal or state law (an "Excise Tax"), then
notwithstanding anything contained in this agreement to the
contrary, to the extent that any or all Payments would be subject
to the imposition of an Excise Tax, the Payments shall be reduced
(but not below zero) if and to the extent that such reduction
would result in your retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes
and the imposition of the Excise Tax), than if you received all
of the Payments (such reduced amount is hereinafter referred to
as the "Limited Payment Amount"). Unless you give prior written
notice specifying a different order to the Company to effectuate
the limitations described in the preceding sentence, the Company
shall reduce or eliminate the Payments, by first reducing or
eliminating those payments or benefits which are not payable in
cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which
are to be paid the farthest in time from the Determination (as
defined below). Any notice given by you pursuant to the preceding
sentence shall take precedence over the provisions of any other
plan, arrangement or agreement, including, but not limited to,
the other provisions of this agreement, governing your rights and
entitlements to any compensation, entitlement or benefit.
b. All calculations under this paragraph 29 shall be made by a
nationally recognized accounting firm designated by the Company
and reasonably acceptable to you (other than the accounting firm
that is regularly engaged by any party who has effectuated a
Change in Control) (the "Accounting Firm"). The Company shall pay
all fees and expenses of such Accounting
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Firm. The Accounting Firm shall provide its calculations,
together with detailed supporting documentation, both to the
Company and you within 45 days after the Change in Control or the
Date of Termination, whichever is later (or such earlier time as
is requested by the Company) and, with respect to the Limited
Payment Amount, shall deliver its opinion to you that you are not
required to report any Excise Tax on your federal income tax
return with respect to the Limited Payment Amount (collectively,
the "Determination"). Within 5 days of your receipt of the
Determination, you shall have the right to dispute the
Determination (the "Dispute"). The existence of the Dispute shall
not in any way affect your right to receive the Payments in
accordance with the Determination. If there is no Dispute, the
Determination by the Accounting Firm shall be final binding and
conclusive upon the Company and you (except as provided in clause
(c) below).
c. If, after the Payments have been made to you, it is established
that the Payments made to you, or provided for your benefit,
exceed the limitations provided in clause (a) above (an "Excess
Payment") or are less than such limitations (an "Underpayment"),
as the case may be, then the provisions of this clause (c) shall
apply. If it is established pursuant to a final determination of
a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that an Excess
Payment has been made, you shall repay the Excess Payment to the
Company on demand. In the event that it is determined by (i) the
Accounting Firm, the Company (which shall include the position
taken by the Company, or together with its consolidated group, on
its federal income tax return) or the IRS, (ii) pursuant to a
determination by a court, or (iii) upon the resolution to your
satisfaction of the Dispute, that an Underpayment has occurred,
the Company shall pay an amount equal to the Underpayment to you
within 10 days of such determination or resolution together with
interest on such amount at the applicable federal short-term
rate, as defined under Section 1274(d) of the Code and as in
effect on the first date that such amount should have been paid
to you under this agreement, from such date until the date that
such Underpayment is made to you."
7. Exhibit A to the Employment Agreement is amended as follows:
(a) By adding the following new definition:
"AMENDMENT DATE" shall mean August 11, 2005.
(b) By deleting the definition of "CHANGE IN CONTROL" in its entirety
and replacing it with the following definition:
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"CHANGE IN CONTROL" shall mean any of the following:
(i) any "person" (as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934) or group of persons
acting jointly or in concert, but excluding a person who owns
more than 5% of the outstanding shares of the Company as of the
date of the Commencement Date, becomes a "beneficial owner" (as
such term is used in Rule 13d-3 promulgated under that Act), of
50% or more of the Voting Stock of the Company;
(ii) all or substantially all of the assets of the Company are
disposed of pursuant to a merger, consolidation or other
transaction (unless the shareholders of the Company immediately
prior to such merger, consolidation or other transaction
beneficially own, directly or indirectly, in substantially the
same proportion as they owned the Voting Stock of the Company,
all of the Voting Stock or other ownership interests of the
entity or entities, if any, that succeed to the business of the
Company); or
(iii) approval by the shareholders of the Company of a complete
liquidation or dissolution of all or substantially all of the
assets of the Company.
For purposes of this Change in Control definition, "Voting Stock"
shall mean the capital stock of any class or classes having
general voting power, in the absence of specified contingencies,
to elect the directors of the Company."
This Amendment contains the entire understanding and agreement between the
parties concerning the subject matter hereof and, as of the Amendment Date,
shall supersede all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the parties with respect to
any non-qualified retirement or pension benefits or any benefits upon or
following a Change in Control, including, without limitation, the letter
agreement between the Company and you dated as of April 16, 2004 relating to a
certain retirement benefit. Except as otherwise provided herein, the Employment
Agreement remains in full force and effect.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
THE WARNACO GROUP, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: President and Chief Executive
Officer
THE EXECUTIVE
/s/ Xxxxx Xxxxxxxx
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Xxxxx Xxxxxxxx
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