LIZ CLAIBORNE, INC. EXECUTIVE TERMINATION BENEFITS AGREEMENT
EXHIBIT 99.3
LIZ CLAIBORNE, INC.
EXECUTIVE TERMINATION BENEFITS AGREEMENT
EXECUTIVE TERMINATION BENEFITS AGREEMENT
This Executive Termination Benefits Agreement (this “Agreement”), dated as of the 13th day of
October, 2006, (the “Effective Date”) is by and between Liz Claiborne, Inc., a Delaware corporation
(the “Company”), and Xxxxxxx X. XxXxxx (the “Executive”).
WHEREAS, the Company’s Board of Directors (the “Board”) recognizes that the possibility of a change
in control of the Company and the uncertainty and questions which it may raise may result in the
departure or distraction of the Executive to the detriment of the Company and its stockholders;
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of the Executive to his/her assigned duties in the face of
the inevitable distraction of the Executive by virtue of the personal uncertainties and risks
created by the possibility, threat or occurrence of a change in control of the Company;
WHEREAS, should the Company be faced with a possible change in control situation, in addition to
the Executive’s regular duties, he/she may be called upon to assist in the assessment of proposals,
advise management and the Board as to whether such proposals would be in the best interests of the
Company and its stockholders, and to take such other actions as the Board might determine to be
appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued undivided attention and
services of the Executive and the availability of his/her advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control of the Company, and to induce the
Executive to remain in the employ of the Company in such a circumstance, for the benefit of the
Company and its shareholders, and for other good and valuable consideration, the Company and the
Executive agree as follows:
1. Term of Agreement.
(a) Except as otherwise provided in Section 1(b) below, this Agreement shall be effective as of the
date hereof and shall continue in effect until the end of the “Term of Employment” as such term is
used in the employment agreement between the Company and the Executive dated October 13, 2006 (the
“Employment Agreement”).
(b) If a Change in Control shall have occurred at any time during the period in which this
Agreement is effective, then notwithstanding any provision hereof to the contrary, this Agreement
shall be effective and continue in effect for (i) the remainder of the month in which the Change in
Control occurred and (ii) a term of thirty-six (36) months beyond the month in which such Change in
Control occurred; provided that if any obligations of the Company hereunder shall not have been
fully and finally discharged at the end of such thirty six (36) month period, this Agreement shall
remain in effect until such
obligations shall have been finally discharged in full. The period commencing on the earlier of a
Potential Change in Control (if applicable) or Change in Control and ending with the conclusion of
such thirty-six (36) month period shall be referred to hereinafter as the “Protected Period”.
2. Change in Control and Potential Change in Control.
(a) For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred:
(i) if any person as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended from time to time (the “Exchange Act”), and as used in Sections 13(d) and 14(d)
thereof, including a “group” as defined in Section 13(d) of the Exchange Act (a “Person”),
but excluding the Company, any subsidiary of the Company and any employee benefit plan
sponsored or maintained by the Company or any subsidiary of the Company (including any
trustee of such plan acting as trustee), directly or indirectly, becomes the “beneficial
owner” (as defined in Rule 13(d)-3 under the Exchange Act, as amended from time to time) of
Company securities representing 25% or more of either (i) the then outstanding shares of
the Company’s common stock or (ii) the combined voting power of the Company’s then
outstanding voting securities entitled to vote generally in the election of directors;
provided, however, that the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue
of the exercise of a conversion privilege), or (B) any acquisition by any corporation or
similar entity pursuant to a reorganization, merger or consolidation if following such
reorganization, merger or consolidation, the conditions described in sub-clauses (1), (2),
and (3) of Section 2(a)(iii) below have been satisfied; or
(ii) if individuals who, as of the date hereof, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s stockholders, was approved by a vote
of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(iii) upon consummation of a reorganization, merger or consolidation of the Company (a
“Business Combination”), in each case, unless, following such Business Combination, (1) all
or substantially all of the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of
common stock of the Company and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination beneficially own, directly or indirectly,
more than fifty percent (50%) of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries), (2) no Person (excluding (A)
any employee benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination and (B) any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, 25% or more of, respectively, the then
outstanding shares of the common stock of the Company, or the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in the
election of directors) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of directors, and
(3) at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement relating to, or of the action of the Incumbent Board
providing for, such Business Combination; or
(iv) upon consummation of the sale or other disposition of all or substantially all of the
assets of the Company, unless following such transaction (1) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of the then
outstanding shares of common stock of the Company and the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the election of
directors immediately prior to such transaction beneficially own, directly or indirectly,
more than sixty percent (60%) of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the acquiring corporation
(including, without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries), (2) no Person (excluding (A) any employee benefit plan (or
related trust) of the Company or such acquiring corporation and (B) any Person beneficially
owning, immediately prior to such transaction, 25% or more of, respectively, the then
outstanding shares of the common stock of the Company, or the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in the
election of directors) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the acquiring corporation or
the combined voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors, and (3) at least a majority of the
members of the board of directors of the acquiring corporation were members of the
Incumbent Board at the time of the execution of the initial agreement relating to, or of
the action of the Incumbent Board providing for, such sale or disposition; or
(v) approval by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
(b) For purposes of this Agreement, a “Potential Change in Control” shall be deemed to have
occurred if (i) the Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would constitute a Change in
Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement,
a Potential Change in Control has occurred; provided that the Board shall not be precluded from
adopting a resolution to the effect that for purposes of this Agreement, it is the good faith
opinion of the Board that a Potential Change in Control has been abandoned and that a Potential
Change in Control no longer exists.
(c) For purposes of Sections 3 through 9 of this Agreement, the term “Company” shall include Xxx
Xxxxxxxxx, Inc. and any successor thereto, whether by merger, reorganization, consolidation,
acquisition of substantially all of its assets or any other means.
3. Covered Termination.
(a) In the event that the Executive’s employment is terminated during the Protected Period either
(i) by the Company without Cause (as defined in Section 3(c) below) or (ii) by the Executive for
Good Reason (as defined in Section 3(b) below) (each, a “Covered Termination”), the Company will
provide the Executive with the payments and benefits set forth in Section 4 below.
(b) For purposes of this Agreement, “Good Reason” shall mean the occurrence of one or more of the
following events (regardless of whether any other reason, other than Cause as provided below, for
such termination exists or has occurred, including without limitation other employment):
(i) failure to elect or reelect or otherwise maintain the Executive in the offices or
positions, or substantially equivalent offices or positions, of or with the Company, which
the Executive held immediately prior to the Change of Control;
(ii) a significant adverse change in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to the position with the Company which the
Executive held immediately prior to the Change in Control;
(iii) a reduction by the Company, without the Executive’s prior consent, in either (1) the
Executive’s annual base salary immediately prior to the Change in Control or (2) the
Executive’s target bonus opportunity (expressed as a percentage of the Executive’s annual
base salary) immediately prior to the Change in Control;
(iv) the Company’s requiring the Executive, without the Executive’s prior consent, to be
based more than fifty (50) miles from the Company’s offices at which the Executive is based
immediately prior to the Change in Control (excluding for this purpose 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, in the event the
Executive consents to any such relocation of his/her offices, the failure by the Company to
provide the Executive with all of the benefits of the Company’s relocation policy as in
effect immediately prior to the Change in Control;
(v) the failure by the Company, without the Executive’s prior consent, to pay to the
Executive any portion of the Executive’s current compensation (for purposes of this clause
(v), “current compensation” shall mean the Executive’s annual base salary as in effect on
the date hereof or as the same may be increased from time to time, plus the bonuses awarded
to the Executive pursuant to the Company’s cash incentive bonus plan), or to pay to the
Executive any portion of any installment or deferred compensation under any deferred
compensation program of the Company within twenty (20) days after request for payment by
the Executive after such deferred compensation is due;
(vi) the failure by the Company to continue in effect any then ongoing compensation or
benefit plan in which the Executive participates immediately prior to the Change in Control
and which is significant to the Executive’s total compensation opportunity on either an
annual or long-term basis, including, but not limited to, the Company’s 2005 Stock
Incentive Plan, any other long-term incentive plan of the Company, or any substitute plan
for any of the foregoing adopted prior to the Change in Control, 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 on a basis not significantly less favorable to the Executive, in
terms of the amount of the compensation opportunities so provided, to those provided to the
Executive immediately prior to the Change in Control, it being agreed, without limiting the
foregoing, for the avoidance of doubt, that the Company shall be deemed to have failed to
continue the Executive’s participation in such plans on a basis not significantly less
favorable to the Executive in the event that the Executive’s target long-term incentive
compensation opportunity
(expressed as a percentage of the Executive’s base salary) subsequent to the Change of
Control shall not equal or exceed his/her long-term incentive compensation opportunity
(expressed as a percentage of the Executive’s base salary) as in effect immediately prior
to the Change in Control;
(vii) the failure by the Company to continue to provide the Executive with benefits
comparable in the aggregate to those enjoyed by the Executive under the Company’s
retirement, life insurance, medical, dental, health, accident and disability plans in which
the Executive was participating immediately prior to the Change in Control;
(viii) the failure of the Company to obtain an agreement from any successor to assume and
agree to perform this Agreement as contemplated by Section 9 below prior to the effective
date of any such succession, or, if such an agreement is not so obtained, the failure of
the Company, within three (3) business days after receiving a written request from the
Executive for such agreement, to so provide such agreement;
(ix) any failure of the Company to timely renew the Term of Employment (as such term is
used in the Employment Agreement) at the end of the Initial Term (as such term is used in
the Employment Agreement) or at the end of any extension period of the Term of Employment
after the Initial Term, in accordance with Section 2 of the Employment Agreement; or
(x) any purported termination of the Executive’s employment which is not effected pursuant
to a Notice of Termination satisfying the requirements of Section 5(a) below.
The Executive’s continued employment shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder. Notwithstanding the
foregoing, the occurrence of an event that would otherwise constitute Good Reason hereunder shall
cease to be an event constituting Good Reason if the Executive does not provide a Notice of
Termination to the Company within one hundred eighty (180) days of the date that the Executive
first becomes aware of the occurrence of such event.
(c) For purposes of this Agreement, “Cause” shall mean and be limited to
(i) the Executive’s willful and intentional repeated failure or refusal, continuing after
notice that specifically identifies the breach(es) complained of, to perform substantially
his/her material duties, responsibilities and obligations (other than a failure resulting
from the Executive’s incapacity due to physical or mental illness or other reasons beyond
the control of the Executive), and which
failure or refusal results in demonstrable direct and material injury to the Company;
(ii) any willful and intentional act or failure to act involving fraud, misrepresentation,
theft, embezzlement, dishonesty or moral turpitude (collectively, “Fraud”) which results in
demonstrable direct and material injury to the Company;
(iii) conviction of (or a plea of nolo contendere to) an offense which is a felony in the
jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which
involves Fraud; or
(iv) the Executive’s complete inability to perform his/her material duties,
responsibilities and obligations on account of a physical or mental incapacity or
impairment for a period of more than 180 consecutive days or for an aggregate of 240 days
within a 360-day period, which incapacity or impairment continues for more than thirty (30)
days after the Executive’s receipt of written notice from the Company given after such 180
or 240 day period has run without the Executive’s return, on a substantially full-time
basis, to employment. For purposes of determining whether Cause exists, no act, or failure
to act, on the Executive’s part shall be deemed “willful” or “intentional” unless done, or
omitted to be done, by the Executive in bad faith, and without reasonable belief that
his/her action or omission was in the best interests of the Company.
For purposes of clause (iv) above, a determination of the Executive’s complete inability to perform
his/her material duties, responsibilities and obligations will be made by a single physician
satisfactory to both the Executive and the Company; provided that if the Executive and the Company
cannot agree as to a single physician, then each will select a physician and these two together
will select a third physician, whose determination will be binding on the Executive and the
Company. The Executive shall have the right to present to the Company and such physician such
information and arguments on the Executive’s behalf as the Executive deems appropriate, including
the opinion of the Executive’s personal physician.
Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for
“Cause” hereunder unless and until there shall have been delivered to the Executive a copy of a
resolution (a “Cause Resolution”) duly adopted by the affirmative vote of not less than two thirds
(2/3) of the Board then in office at a meeting of the Board called upon reasonable notice to all
Directors and held for such purpose, after reasonable notice to the Executive and an opportunity
for the Executive, together with his counsel (if the Executive chooses to have counsel present at
such meeting), to be heard before the Board at such meeting, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting “Cause” as herein defined and
specifying the particulars thereof in detail. Nothing herein will limit the right of the Executive
or his beneficiaries to contest the validity or propriety of any such determination and/or Cause
Resolution.
(d) Nothing contained in this Agreement is intended to, or shall operate to, preclude the payment
of any amounts (other than cash severance benefits) otherwise payable to the Executive under any of
the Company’s employee benefit plans, stock plans, programs and arrangements and/or under the
Employment Agreement, or to limit or otherwise adversely affect such rights as the Executive may
have under any contract or agreement with the Company.
4. Severance Payments and Benefits.
(a) In lieu of any other cash severance payments to which the Executive may otherwise be entitled
under the Employment Agreement or otherwise (and which other cash severance payments the Executive
hereby expressly waives), and subject to the provisions regarding cutback of benefits in certain
circumstances as expressly provided in Section 6(h) below, the Company shall pay or provide to the
Executive the following amounts (the “Severance Payments”) upon the occurrence of a Covered
Termination during the Protected Period:
(i) an amount equal to three (3) times the amount of the Executive’s effective annual base
salary rate, as in effect immediately prior to a Change of Control or the Date of
Termination (as defined in Section 5(b) below), whichever amount is higher;
(ii) an amount equal to three (3) times (A) the average annual bonus earned by the
Executive under the Company’s cash incentive bonus plan in respect of the three fiscal
years of the Company ending prior to (w) the date on which a Change of Control occurred or
(x) the date on which the Date of Termination occurred, whichever amount is higher, or, in
the event the Date of Termination and the Change of Control occur prior to the
determination by the Compensation Committee of the Company of an annual bonus in respect of
fiscal year 2007, (B) the Executive’s Bonus Target Threshold (expressed as a percentage in
Section 3(b)(3) of the Employment Agreement) for the fiscal year of the Company in which
(y) the date on which a Change of Control occurred or (z) the date on which the Date of
Termination occurred, whichever amount is higher;
(iii) an amount equal to the Executive’s annual bonus earned or accrued in respect of any
prior fiscal year of the Company but not yet paid as of the Date of Termination; and
(iv) an amount equal to the product of (x) the greater of (A) the Executive’s target bonus
opportunity under the Company’s cash incentive bonus plan for the fiscal year in which the
Date of Termination occurs; and (B) the average bonus the Executive earned for the three
(3) fiscal years preceding the fiscal year in which the Change in Control occurred,
multiplied by (y) a fraction, the numerator of which is the number of months and partial
months expired in the fiscal year of
the Company in which the Date of Termination occurs, through the Date of Termination, and
the denominator of which is twelve (12).
(b) In the case of a Covered Termination during the Protected Period, in addition to the payments
provided for in Section 4(a) above, the Company shall, during the period ending thirty-six (36)
months after the month in which the Date of Termination occurs, arrange at the Company’s sole
expense to provide the Executive and his/her dependents with life, medical, dental, health, and
disability insurance benefits at least equal, in type and level of coverage, to those which the
Executive and his/her dependents were receiving immediately prior to the Notice of Termination
(without, however, giving any effect to any reduction in such benefits subsequent to a Change in
Control). Benefits otherwise receivable by the Executive pursuant to this Section 4(b) shall be
reduced to the extent that comparable benefits equal in type and level of coverage are actually
received by the Executive from, or made available to the Executive by, a subsequent employer
without greater cost to him/her than as provided by the Company during such 36-month period (and
any such benefits received by or made available to the Executive shall be reported to the Company
by the Executive). In addition, in the event that the Executive and/or his/her dependents are
ineligible under the terms of any of the Company’s plans to continue to be so covered, the Company
shall provide to the Executive a lump sum payment (determined on a present value basis using the
interest rate provided for in Section 1274(b)(2)(B) of the Internal Revenue Code on the Date of
Termination) in such amount, after taxes, that shall be equal to the cost to the Executive of
procuring such coverage for such period.
(c) In the case of a Covered Termination during the Protected Period, (i) any unvested amount
credited to the Executive’s bookkeeping account under the Company’s Supplemental Executive
Retirement Plan as in effect on the date hereof, and as the same may be amended prior to any Change
of Control (“SERP”), will become fully vested as of the Date of Termination, and in such event such
bookkeeping account shall be increased as of the Date of Termination by the aggregate amount of the
unvested portion of any account maintained for the Executive under any of the Company’s “qualified”
retirement plans as of the Executive’s date of termination of employment; and (ii) the Executive’s
SERP account shall be distributed to the Executive as provided under the terms of the SERP and in
accordance with the Executive’s distribution election then in effect.
(d) In the case of a Covered Termination during the Protected Period, notwithstanding anything to
the contrary contained herein, all outstanding stock options and restricted share, and restricted
unit awards, if any, granted to the Executive under any of the Company’s stock incentive plans or
other similar plans shall become fully vested and, to the extent applicable, exercisable.
(e) In the case of a Covered Termination during the Protected Period, the Company shall pay to the
Executive all other amounts vested, accrued or earned by the Executive through the Date of
Termination and amounts otherwise owing under the then existing
plans and policies of the Company, including but not limited to all compensation or other amounts
previously deferred by the Executive (together with any accrued interest thereon) and not yet paid
by the Company.
(f) The Company shall pay to the Executive the amount due pursuant to Section 4(a) in a lump sum
cash payment as soon as practicable, but in any event by the fifth (5th) business day following the
Date of Termination.
5. Notice of Termination and Date of Termination.
(a) During the Protected Period, any termination of the Executive’s employment by the Executive for
Good Reason or by the Company for Cause or without Cause shall be communicated by written Notice of
Termination from the party terminating employment hereunder to the other party hereto in accordance
with Section 10 below. For purposes of this Agreement, a “Notice of Termination” shall mean (i) a
notice given to the Executive by the Company indicating a termination without Cause, or (ii) a
notice given in good faith and with a reasonable belief that Good Reason or Cause, as the case may
be, has occurred, which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so indicated. Any Notice of
Termination must specify a Date of Termination; any Notice of Termination for Cause shall include a
copy of the relevant Cause Resolution.
(b) For purposes of this Agreement, “Date of Termination” shall mean (i) in the case of a
termination by the Company for Cause or by the Executive for Good Reason, the date specified as the
Executive’s last day of employment in the Notice of Termination, which shall not be less than ten
(10) business days after the date such Notice of Termination is deemed given in accordance with
Section 10 below, or (ii) in any other case, the last day worked by the Executive as reflected on
the Company’s payroll records.
6. Tax Gross-Up; Potential Reduction in Severance Amount.
(a) Anything in this Agreement to the contrary notwithstanding, but subject to Section 6(h), in the
event that a Covered Termination shall occur during the Protected Period and it shall be determined
(as hereafter provided) that any payment (other than the Gross-Up payments provided for in this
Section 6) or distribution by the Company or any of its subsidiaries to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to the terms of this
Agreement or pursuant to any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or similar right, restricted stock or
deferred stock, or the lapse or termination of any restriction on, deferral period or the vesting
or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any successor
provision thereto, by reason of being considered “contingent on a change in ownership or control”
of the Company within the meaning of Section 280G
of the Code (or any successor provision thereto) or to any similar tax imposed by state or local
law, or any interest or penalties with respect to such tax (such tax or taxes, together with any
such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then
the Executive shall be entitled to receive an additional payment or payments (collectively, a
“Gross-Up Payment”) as provided herein. The Gross-Up Payment shall be in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties imposed with respect to
such taxes), including any Excise Tax and any federal, state or local income and employment tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) below, all determinations required to be made under
this Section 6, including the determination as to whether an Excise Tax is payable by the Executive
and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the
Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the “Accounting Firm”) selected by the Executive in his sole
discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed
supporting calculations to both the Company and the Executive within 30 calendar days after the
date of the Change in Control, the Date of Termination, if applicable, and any such other time or
times as may be requested by the Company or the Executive. If the Accounting Firm determines that
any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to
the Executive within five business days after receipt of such determination and calculations with
respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such determination, furnish the
Company and the Executive an opinion that the Executive has substantial authority not to report any
Excise Tax on his federal, state or local income or other tax return. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made (an “Underpayment”), consistent with
the calculations required to be made hereunder. In the event that the Company exhausts or fails to
pursue its remedies pursuant to Section 6(f) below and the Executive thereafter is required to make
a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount
of the Underpayment that has occurred and to submit its determination and detailed supporting
calculations to both the Company and the Executive as promptly as possible. Any such Underpayment
shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5)
business days after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting Firm access to and copies of
any books, records and documents in the possession of the Company or the Executive, as the case may
be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm
in connection with the preparation and
issuance of the determinations and calculations contemplated by Section 6(b) above. Any
determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon
the Company and the Executive.
(d) The federal, state and local income or other tax returns filed by the Executive shall be
prepared and filed on a consistent basis with the determination of the Accounting Firm with respect
to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount
of any Excise Payment, and at the request of the Company, provide to the Company true and correct
copies (with any amendments) of his/her federal income tax return as filed with the Internal
Revenue Service and corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested by the Company,
evidencing such payment. If prior to the filing of the Executive’s federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm determines that the
amount of the Gross-Up Payment should be reduced, the Executive shall within five business days
after receipt of the Accounting Firm’s determination pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Section 6(b) above shall be borne solely by the
Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse
the Executive the full amount of such fees and expenses within five (5) business days after receipt
from the Executive of a statement therefor and reasonable evidence of the payment thereof.
(f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service
or any other taxing authority that, if successful, would require the payment by the Company of a
Gross-Up Payment or any additional Gross-Up Payment. Such notification shall be given as promptly
as practicable but no later than ten (10) business days after the Executive actually receives
notice of such claim and the Executive shall further apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid (in each case, to the extent known
by the Executive). The Executive shall not pay such claim prior to the earlier of (x) the
expiration of the thirty (30)-calendar day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such claim is due. If
the Company notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in his possession relating to
such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively to contest such claim;
and
(iv) permit the Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses (including
interest and penalties) incurred in connection with such contest and shall indemnify and
hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or
income or employment tax, including interest and penalties with respect thereto, imposed as
a result of such contest and payment of costs and expenses.
Without limiting the foregoing provisions of this Section 6(f), the Company shall control all
proceedings taken in connection with the contest of any claim contemplated by this Section 6(f)
and, at its sole option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim (provided, however,
that the Executive may participate therein at his/her own cost and expense) and may, at its option,
either direct the Executive to pay the tax claimed and xxx for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay the tax claimed and xxx for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and provided further,
however, that any extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company’s control of any such contested
claim shall be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section
6(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to
the Company’s complying with the requirements of Section 6(f)) above promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 6(f), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the Executive in writing of its
intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after
such
determination, then such advance shall be forgiven and shall not be required to be repaid and the
amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 6.
(h) Notwithstanding any provision of this Agreement to the contrary, if but for this sentence, the
Company would be obligated to make “parachute payments” to the Executive, whether under this
Agreement, the terms of any stock-based compensation award or any other agreement, contract or
arrangement, but the aggregate “present value” of all such parachute payments does not exceed the
lesser of (i) (x) 1.05 multiplied by (y) three (3) times the Executive’s “base amount” or (ii)
$250,000 plus three (3) times the Executive’s “base amount,” then the payments and benefits to be
paid or provided under this Agreement will be reduced to the minimum extent necessary (but in no
event to less than zero) so that no portion of the total payments or benefits due to the Executive
on account of a change in control of the Company, determined after the reduction under this
Agreement, constitutes an “excess parachute payment.” For purposes of this Section 6(h), the terms
“change in control,” “excess parachute payment,” “present value,” “parachute payment,” and “base
amount” have the meanings assigned to them by Section 280G of the Code. The determination of
whether any reduction in such payments or benefits to be provided under this Agreement is required
pursuant to the preceding sentence will be made, if requested by the Executive or the Company, at
the expense of the Company by the Company’s regular outside accounting firm. The fact that the
Executive’s right to payments or benefits may be reduced by reason of the limitations contained in
this Section 6(h) will not of itself limit or otherwise affect any other rights of the Executive
other than pursuant to this Agreement. In the event that any payment or benefit intended to be
provided under this Agreement is required to be reduced pursuant to this Section 6(h), the
Executive will be entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 6(h). The Company will provide the Executive with all information
reasonably requested by the Executive to permit the Executive to make such designation. In the
event that the Executive fails to make such designation within ten (10) business days of the
Termination Date, the Company may effect such reduction in any manner it deems appropriate. If,
despite a reduction in payments and/or benefits in accordance with this Section 6(h), the Executive
is required, after notice to the Company pursuant to Section 6(f), to pay an Excise Tax, the
Executive shall be paid a Gross-Up Payment in accordance with Section 6(a), but shall not be
entitled to any additional amounts relating to such reduction in payments and/or benefits,
notwithstanding the failure of the reduction to achieve the goal of avoiding an Excise Tax
liability.
7. No Mitigation Obligation or Permitted Offset.
The Executive will not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other
benefits from any source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise,
except as expressly provided in the penultimate sentence of Section 4(b) above with respect to the
provision of comparable welfare benefits by a subsequent employer. The Company shall not be
permitted to reduce any payment owed to the Executive under this Agreement by any amount owed, or
allegedly owed, to the Company by the Executive.
8. Arbitration; Payment of Legal Fees.
(a) All claims by the Executive for payments and other benefits under this Agreement shall be in
writing and directed to the Board. Any denial by the Board of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a claim and shall
further allow the Executive to appeal to the Board any decision of the Board within sixty (60) days
after notification by the Board that the Executive’s claim has been denied. Any dispute, claim or
controversy arising out of or relating to this Agreement or the breach hereof shall be settled by
arbitration in the State, City and County of New York in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may be entered in any
court having jurisdiction thereof. The parties hereto agree that any arbitral award may be enforced
against the parties to an arbitration proceeding or their assets wherever they may be found.
(b) In the event of any dispute, claim or controversy arising out of or in connection with this
Agreement, including without limitation in connection with the Executive’s seeking to obtain or
enforce any right or benefit provided by this Agreement, if the Executive prevails on any of the
material issues involved in any such dispute, claim or controversy, the Company shall pay to the
Executive immediately upon demand all reasonable expenses (including without limitation attorneys’
fees) incurred by the Executive in connection therewith. Any such reimbursement shall be in
addition to the Company’s obligations to pay or reimburse the Executive’s fees and expenses as
provided in Section 6 above.
9. Successors.
(a) In addition to any obligation imposed by law upon any successor to the Company, the Company
shall 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, by agreement
in form and substance satisfactory to the Executive, to assume expressly 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.
(b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive dies while any amounts are payable to the
Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his estate.
10. Notices.
All notices or communications required or permitted hereunder will be given in writing by personal
delivery; by confirmed facsimile transmission; by express delivery via any reputable express
courier service; or by registered or certified mail, return receipt requested, postage prepaid, in
each case addressed to the parties at the respective addresses set forth below or at such other
address as may be designated in writing by either party to the other in the manner set forth
herein. Notices and communications which are delivered personally, by confirmed facsimile
transmission, or by courier as aforesaid, will be deemed effectively given on the date of delivery;
those delivered by mail as aforesaid will be deemed effectively given upon the fifth (5th) calendar
day subsequent to the postmark date thereof.
If to the Company:
Liz Claiborne, Inc.
Xxx Xxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: General Counsel
Xxx Xxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: General Counsel
If to the Executive:
At the address set forth opposite the Executive’s name
on the signature page hereof or any changed address on the books
and records of the Company from time to time
on the signature page hereof or any changed address on the books
and records of the Company from time to time
11. Governing Law.
This Agreement has been made and will be governed in all respects by the internal laws of the State
of Delaware applicable to contracts made and to be wholly performed within such state (without
regard to principles of conflict of laws) and the parties hereby irrevocably consent to the
jurisdiction of the federal and state courts sitting in the State of Delaware for the purpose of
enforcing this Agreement.
12. Miscellaneous.
(a) No provisions of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Executive and the Company. No
waiver by either party hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
(b) This Agreement, taken together with the provisions of any employment agreement or other written
agreement relating to the Executive, sets forth the entire agreement by and between the Company and
the Executive with respect to the subject matter hereof.
(c) Nothing expressed or implied in this Agreement will create any right or duty on the part of the
Company or the Executive to have the Executive remain in the employment of the Company or any
subsidiary prior to or following any Change in Control.
(d) The Company may withhold from any amounts payable under this Agreement all federal, state, city
or other taxes as the Company is required to withhold pursuant to any law or government regulation
or ruling.
(e) In the event that the Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such payment, such payment shall be increased
to reflect an interest factor, compounded annually, equal to the prime rate in effect as of the
date the payment was first due plus five (5) points. For this purpose, the prime rate shall be
based on the rate identified by JPMorgan Chase as its prime rate in New York City.
(f) The invalidity or unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall remain in full
force and effect.
(g) This Agreement is personal in nature and neither of the parties hereto shall, without the
consent of the other, assign or transfer this Agreement or any rights or obligations hereunder,
except as provided in Section 9 above. Without limiting the foregoing, the Executive’s right to
receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of
a security interest or otherwise, other than a transfer by his/her will or by the laws of descent
or distribution, and in the event of any attempted assignment or transfer by the Executive contrary
to this Section 12(g) the Company shall have no liability to pay any amount so attempted to be
assigned or transferred to any person other than the Executive or, in the event of his/her death,
his/her estate.
(h) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be
an original but all of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the
day and year first above set forth.
| Liz Claiborne, Inc. |
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| By: | /s/ Xxxx X. Xxxxxxx | |||
| Xxxxxxx X. XxXxxx |
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| /s/ Xxxxxxx X. XxXxxx | ||||
