Employment Agreement - Coach Inc. and Lew Frankfort
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of June 1, 2003 (the "Effective
Date"), is made by and between Coach, Inc., a Maryland corporation (the
"Company") and Lew Frankfort (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of
the services of the Executive by engaging the Executive as its Chairman and
Chief Executive Officer.
B. The Executive desires to commit himself to serve the
Company on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties hereto agree as
follows:
1. Certain Definitions
(a) "Affiliate" shall mean with respect to any
Person, any other Person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with, such Person. For purposes of this Section 1(a), "control" shall
have the meaning given such term under Rule 405 of the Securities Act
of 1933, as amended.
(b) "Annual Base Salary" shall have the meaning
set forth in Section 5(a).
(c) "Board" shall mean the Board of Directors of
the Company.
(d) "Bonus" shall have the meaning set forth in
Section 5(b).
(e) The Company shall have "Cause" to terminate
the Executive's employment upon (i) the Executive's failure to attempt
in good faith to substantially perform the duties as Chairman and Chief
Executive Officer (other than any such failure resulting from the
Executive's physical or mental incapacity) which is not remedied within
30 days after receipt of written notice from the Company specifying
such failure; (ii) the Executive's failure to attempt in good faith to
carry out, or comply with, in any material respect any lawful and
reasonable directive of the Board, which is not remedied within 30 days
after receipt of written notice from the Company specifying such
failure; (iii) the Executive's commission at any time of any act or
omission that results in, or may reasonably be expected to result in, a
conviction, plea of no contest, or imposition of unadjudicated
probation for any felony (or any other crime involving fraud,
embezzlement, material misconduct or misappropriation having a material
adverse impact on the Company); (iv) the Executive's unlawful use
(including being under the influence) or possession of illegal drugs on
the Company's premises or while performing the Executive's duties and
responsibilities; or (v) the Executive's willful commission at any time
of any act of fraud, embezzlement, misappropriation, misconduct, or
breach of
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fiduciary duty against the Company (or any predecessor thereto or
successor thereof) having a material adverse impact on the Company.
(f) "Change in Control" shall occur when:
(i) A Person (which term, when used in
this Section 1(f), shall not include the Company, any
underwriter temporarily holding securities pursuant to an
offering of such securities, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or any Company owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Voting Stock of the Company)
is or becomes, without the prior consent of a majority of the
Continuing Directors, the beneficial owner (as defined in Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of Voting Stock
representing, without the prior written consent of a majority
of the Continuing Directors twenty percent (20%) (or, even
with such prior consent, thirty-five percent (35%)) or more of
the combined voting power of the Company's then outstanding
securities; or
(ii) The Company consummates a
reorganization, merger or consolidation of the Company (which
prior to the date of such consummation has been approved by
the Company's stockholders) or the Company sells, or otherwise
disposes of, all or substantially all of the Company's
property and assets (other than a reorganization, merger,
consolidation or sale which would result in all or
substantially all of the beneficial owners of the Voting Stock
of the Company outstanding immediately prior thereto
continuing to beneficially own, directly or indirectly (either
by remaining outstanding or by being converted into voting
securities of the resulting entity), more than fifty percent
(50%) of the combined voting power of the voting securities of
the Company or such entity resulting from the transaction
(including, without limitation, an entity which as a result of
such transaction owns the Company or all or substantially all
of the Company's property or assets, directly or indirectly)
outstanding immediately after such transaction in
substantially the same proportions relative to each other as
their ownership immediately prior to such transaction), or the
Company's stockholders approve a liquidation or dissolution of
the Company; or
(iii) The individuals who are Continuing
Directors of the Company (as defined below) cease for any
reason to constitute at least a majority of the Board.
(g) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(h) "Committee" shall mean the Human Resources
and Corporate Governance Committee of the Board.
(i) "Common Stock" shall mean the $.01 par value
common stock of the Company.
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(j) "Company" shall, except as otherwise
provided in Section 9, have the meaning set forth in the preamble
hereto.
(k) "Competitive Business" shall mean any entity
that, as of the date of the Executive's termination of employment, the
Committee has designated in its sole discretion as an entity that
competes with any of the businesses of the Company; provided, that (i)
not more than 20 entities (which term "entities" shall include any
subsidiaries, parent entities and other Affiliates thereof) shall be
designated as Competitive Businesses at one time and (ii) such entities
are the same 20 entities used for any list of competitive entities for
any other arrangement with an executive of the Company; and, provided
further, that the Committee may change its designation of Competitive
Businesses at any time that is not less than 90 days prior to the
Executive's termination of employment upon written notice thereof to
the Executive (and any such change within the 90 day period immediately
preceding the Executive's termination of employment shall not be
effective). The list of Competitive Businesses in effect as of the
Effective Date (which the parties acknowledge and agree may be changed
by the Committee in accordance with the terms of the immediately
preceding sentence) shall be communicated by the Company to the
Executive as soon as reasonably practicable following the Effective
Date.
(l) "Continuing Director" means (i) any member
of the Board (other than an employee of the Company) as of the
Effective Date or (ii) any person who subsequently becomes a member of
the Board (other than an employee of the Company) whose election or
nomination for election to the Board is recommended by a majority of
the Continuing Directors.
(m) "Contract Year" shall mean (i) the period
beginning on June 1, 2003 and ending on June 30, 2004 and (ii) each
twelve-month period beginning on July 1, 2004 or any anniversary
thereof.
(n) "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his
death and (ii) if the Executive's employment is terminated pursuant to
Section 6(a)(ii) - (vi), the date specified in the Notice of
Termination (or if no such date is specified, the last day of the
Executive's active employment with the Company).
(o) "Disability" shall mean any mental or
physical illness, condition, disability or incapacity which:
(i) Prevents the Executive from
discharging substantially all of his essential job
responsibilities and employment duties;
(ii) Shall be attested to in writing by
a physician or a group of physicians selected by the Executive
and acceptable to the Company; and
(iii) Has prevented the Executive from so
discharging his duties for any 180 days in any 365 day period.
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A Disability shall be deemed to have occurred on the 180th day in any
such 365 day period.
(p) "Executive" shall have the meaning set forth
in the preamble hereto.
(q) "Extension Term" shall have the meaning set
forth in Section 2.
(r) "Financial Gain" with respect to any
specified period of time shall mean the sum of all (i) Retention Option
Gains realized by the Executive during such period and (ii) Retention
RSU Gains realized by the Executive during such period.
(s) The Executive shall have "Good Reason" to
resign his employment upon the occurrence of any of the following: (i)
failure of the Company to continue the Executive in the position of
Chairman and Chief Executive Officer; (ii) a material diminution in the
nature or scope of the Executive's responsibilities, duties or
authority(including, without limitation, the Executive's failure to
continue to serve as member of the Board); (iii) relocation of the
Company's executive offices more than 50 miles outside of New York, New
York or relocation of Executive away from the executive offices; (iv)
failure of the Company to timely make any material payment or provide
any material benefit under this Agreement, or the Company's material
reduction of any compensation, equity or benefits that the Executive is
eligible to receive under this Agreement; or (v) the Company's material
breach of this Agreement; provided, however, that notwithstanding the
foregoing the Executive may not resign his employment for Good Reason
unless: (x) the Executive provides the Company with at least 30 days
prior written notice of his intent to resign for Good Reason (which
notice is provided not later than the 60th day following the occurrence
of the event constituting Good Reason) and (y) the Company does not
remedy the alleged violation(s) within such 30-day period; and,
provided, further, that Executive may resign his employment for Good
Reason if in connection with any Change in Control the surviving entity
does not assume this Agreement (or, with the written consent of the
Executive, substitute a substantially identical agreement) with respect
to the Executive in writing delivered to the Executive prior to, or as
soon as reasonably practicable following, the occurrence of such Change
in Control.
(t) "Initial Term" shall have the meaning set
forth in Section 2.
(u) "Intellectual Property" shall have the
meaning set forth in Section 9(f).
(v) "Maximum Bonus" shall have the meaning set
forth in Section 5(b).
(w) "Notice of Termination" shall have the
meaning set forth in Section 6(b).
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(x) "Option" shall mean an option to purchase
Common Stock pursuant to the Stock Incentive Plan (or any other equity
based compensation plan or agreement that may be adopted or entered
into by the Company from time to time).
(y) "Person" shall mean an individual,
partnership, corporation, business trust, limited liability company,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
(z) "Pro-Rata Bonus" shall have the meaning set
forth in Section 7(d).
(aa) "Release" shall have the meaning set forth
in Section 7(b).
(bb) "Retention Option Gain" with respect to any
specified period of time shall mean the product of (i) the number of
shares of Common Stock purchased upon the exercise of any Retention
Options during such period and (ii) the excess of (A) the fair market
value per share of Common Stock as of the date of such exercise over
(B) the exercise price per share of Common Stock subject to such
Retention Options.
(cc) "Retention Options" shall have the meaning
set forth in Section 5(c).
(dd) "Retention RSU Gain" with respect to any
specified period of time shall mean the product of (i) the number of
shares of Common Stock subject to Retention RSUs that first become
vested during such period and (ii) the fair market value per share of
Common Stock as of the date such Retention RSUs first become vested.
(ee) "Retention RSUs" shall have the meaning set
forth in Section 5(d).
(ff) "Stock Incentive Plan" shall mean the
Company's 2000 Stock Incentive Plan, as amended from time to time.
(gg) "Target Bonus" shall have the meaning set
forth in Section 5(b).
(hh) "Term" shall have the meaning set forth in
Section 2.
(ii) "Voting Stock" means all capital stock of
the Company which by its terms may be voted on all matters submitted to
stockholders of the Company generally.
2. Employment. The Company shall employ the Executive
and the Executive shall continue in the employ of the Company, for the period
set forth in this Section 2, in the positions set forth in the first sentence of
Section 3 and upon the other terms and conditions herein provided. The initial
term of employment under this Agreement (the "Initial Term") shall be for the
period beginning on the Effective Date and ending on July 1, 2008, unless
earlier terminated as provided in Section 6. The Initial Term shall
automatically be extended for successive one-year periods (each, an "Extension
Term") unless either party hereto gives written notice of non-extension to the
other no later than 180 days prior to the scheduled
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expiration of the Initial Term or the then applicable Extension Term (the
Initial Term and any Extension Term shall be collectively referred to hereunder
as the "Term").
3. Position and Duties. The Executive shall serve as
Chairman and Chief Executive Officer of the Company, reporting to the Board,
with such responsibilities, duties and authority as are customary for such role.
The Executive shall also be nominated for a seat on the Board. The Executive
shall devote all necessary business time and attention, and employ his
reasonable best efforts, toward the fulfillment and execution of all assigned
duties, and the satisfaction of defined annual and/or longer-term performance
criteria. Notwithstanding the foregoing, the Executive may manage his personal
investments, be involved in charitable and professional activities (including
serving on charitable and professional boards), and, with the consent of the
Board, serve on for profit boards of directors and advisory committees so long
as such service does not materially interfere with Executive's obligations
hereunder or violate Section 9 hereof.
4. Place of Performance. In connection with his
employment during the Term, the Executive shall be based at the Company's
offices in New York, New York, except for necessary travel on the Company's
business.
5. Compensation and Related Matters
(a) Annual Base Salary. At the commencement of
the Term, the Executive shall receive a base salary at a rate of
$811,000 per annum (the "Annual Base Salary"), paid in accordance with
the Company's general payroll practices for executives, but no less
frequently than monthly. No less frequently than annually during the
Term, the Board and the Committee shall review the rate of Annual Base
Salary payable to the Executive, and may, in their discretion, increase
the rate of Annual Base Salary payable hereunder; provided, however,
that any increased rate shall thereafter be the rate of "Annual Base
Salary" hereunder.
(b) Bonus. Except as otherwise provided for
herein, with respect to each Contract Year on which the Executive is
employed hereunder on the last day, the Executive shall be eligible to
receive a bonus (the "Bonus"), as determined pursuant to the Coach,
Inc. Performance-Based Annual Incentive Plan or another "qualified
performance-based compensation" bonus plan that has been approved by
the stockholders of the Company in accordance with the provisions for
such approval under Code Section 162(m) and the regulations promulgated
thereunder (collectively, the "Bonus Plan"), and on the basis of the
Executive's or the Company's attainment of objective financial or other
operating criteria established by the Committee in its sole discretion
and in accordance with Code Section 162(m) and the regulations
promulgated thereunder. With respect to each Contract Year (i) the
Executive shall be eligible to receive a maximum Bonus (the "Maximum
Bonus") in an amount equal to at least 150% of his Annual Base Salary
and (ii) the Executive's target-level Bonus (the "Target Bonus") shall
be equal to 75% of the amount of the Maximum Bonus. In addition, the
Executive shall be eligible to participate in any other bonus plan or
program that may be established by the Committee and that covers the
Executive (even if such plan or program does not provide for qualified
performance-based bonuses within the meaning of Code Section 162(m)).
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(c) Stock Options
(i) During the Term, the Executive
shall be eligible to be granted Options at such time(s) and in
such amount(s) as may be determined by the Committee in its
sole discretion; provided, that the Executive shall be granted
such Options in accordance with the Company's customary past
practice unless the Committee determines in its good faith
discretion that the amount or timing of such Option grants
shall be revised based upon the Executive's performance.
(ii) In addition to any Options granted
in accordance with subsection (i), as of July 1, 2003 the
Executive shall be granted a non-qualified stock option (the
"Retention Options") to purchase 222,222 shares of Common
Stock, pursuant to the terms and conditions of the Stock
Incentive Plan and a written Retention Stock Option Agreement
to be entered into by and between the Company and Executive as
of the date hereof in substantially the form attached hereto
as Exhibit A. The Retention Options shall have an exercise
price equal to the fair market value per share of Common Stock
as of July 1, 2003 and shall have a term of 10 years. The
Retention Options shall become exercisable in two cumulative
installments as follows: (A) the first installment shall
consist of 30% of the shares of Common Stock covered by the
Retention Options and shall become vested and exercisable on
July 1, 2007 and (B) the second installment shall consist of
70% of the shares of Common Stock covered by the Retention
Options and shall become exercisable on July 1, 2008;
provided, that, except as otherwise provided in Section 7 or
in the Retention Stock Option Agreement, no portion of the
Retention Options not then exercisable shall become
exercisable following the Executive's termination of
employment for any reason. In the event of the Executive's
termination of employment for any reason other than for Cause,
the Retention Options to the extent then exercisable shall
remain exercisable until the earlier of (x) the date provided
in the Retention Stock Option Agreement or (y) July 1, 2013.
The Company and the Executive acknowledge and agree that the
Retention Options shall not provide for the grant of any
"Restoration Options" as defined in the Stock Incentive Plan.
(d) Restricted Stock Units
(i) During the Term, the Executive
shall be eligible to be awarded Restricted Stock Units
("RSUs") and other equity compensation awards pursuant to the
Stock Incentive Plan (or any other equity based compensation
plan that may be adopted by the Company from time to time), at
such time(s) and in such amount(s) as may be determined by the
Committee in its sole discretion.
(ii) In addition to any RSUs awarded in
accordance with subsection (i), as of July 1, 2003 the
Executive shall be awarded that number of RSUs that, as of
July 1, 2003, have a projected aggregate value equal to
$3,333,333 (assuming the market value per share of Common
Stock is exactly $30 greater on July 1, 2008 than on July 1,
2003) (the "Retention RSUs"), pursuant to the terms and
conditions of the Stock Incentive Plan and a written
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Retention RSU Agreement to be entered into by and between the
Company and Executive as of the date hereof in substantially
the form attached hereto as Exhibit B. The Retention RSUs
shall become vested with respect to 30% of the Retention RSUs
on July 1, 2007 and with respect to 70% of RSUs on July 1,
2008; provided, that, except as otherwise provided in Section
7 or in the Retention RSU Agreement, no Retention RSUs not
then vested shall become vested following the Executive's
termination of employment.
(e) Benefits. The Executive shall be entitled to
receive such benefits and to participate in such employee group benefit
plans, including life, health and disability insurance policies, as are
generally provided by the Company to its senior executives in
accordance with the plans, practices and programs of the Company.
(f) Expenses. The Company shall reimburse the
Executive for all reasonable and necessary expenses incurred by the
Executive in connection with the performance of the Executive's duties
as an employee of the Company. Such reimbursement is subject to the
submission to the Company by the Executive of appropriate documentation
and/or vouchers in accordance with the customary procedures of the
Company for expense reimbursement, as such procedures may be revised by
the Company from time to time.
(g) Vacations. The Executive shall be entitled
to paid vacation in accordance with the Company's vacation policy as in
effect from time to time. However, in no event shall the Executive be
entitled to less than four weeks vacation per Contract Year. The
Executive shall also be entitled to paid holidays and personal days in
accordance with the Company's practice with respect to same as in
effect from time to time (but in no event shall the Executive be
entitled to fewer than two personal days per Contract Year).
(h) Automobile. During the Term, the Company
shall provide the Executive with a Company-leased automobile in
accordance with the Company's applicable policies and procedures.
(i) Retirement Eligibility. The Company
acknowledges and agrees that, as of the Effective Date, the Executive
shall have attained at least age 55 and been credited with at least 10
years of service under the applicable retirement plans of the Company
(and its predecessor) and that the Executive shall be eligible for
retirement ("Retirement") under such retirement plans upon any
voluntary departure by the Executive from employment with the Company
following the Effective Date and shall be treated as retired for
purposes of all benefit and equity plans and programs (other than for
purposes of the Retention Options and Retention RSUs (unless otherwise
provided in the Retention Stock Option Agreement or Retention RSU
Agreement)). This Agreement shall not impair any rights that the
Executive may have with respect to the treatment of any Options or RSUs
upon the Executive's Retirement under any Option or RSU agreement or
other retirement arrangement entered into prior to the Effective Date.
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6. Termination. The Executive's employment hereunder may
be terminated by the Company, on the one hand, or the Executive, on the other
hand, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) Terminations
(i) Death. The Executive's employment
hereunder shall terminate upon his death.
(ii) Disability. In the event of the
Executive's Disability, the Company may give the Executive
written notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the
Company shall terminate effective on the 14th day after
delivery of such notice, provided that within the 14 days
after such delivery, the Executive shall not have returned to
full-time performance of his duties.
(iii) Cause. The Board may, with the
approval of two-thirds of the Continuing Directors after a
meeting (of which the Executive is provided with at least 10
days prior written notice of the intent of the meeting and the
specifics of the grounds for Cause termination being alleged)
at which the Executive has been given an opportunity to appear
with counsel, terminate the Executive's employment hereunder
for Cause; provided, however, that, notwithstanding the
foregoing, if (A) the Board terminates the Executive's
employment for Cause pursuant to Section 1(e)(iii) and (B) the
Executive (i) is not indicted for, or otherwise charged by any
court or other governmental or regulatory authority with, any
felony or any other crime involving fraud, embezzlement,
material misconduct or misappropriation having a material
adverse impact on the Company (which felony or other crime was
the reason for such termination) within 18 months following
the date of his termination of employment, or (ii) is not
convicted of, does not plea no contest to, and does not
receive unadjudicated probation for, any felony (or any other
crime involving fraud, embezzlement, material misconduct or
misappropriation having a material adverse impact on the
Company) (which felony or other crime was the reason for such
termination), then the Executive's termination of employment
will be deemed to be without Cause and the Executive shall
retroactively be eligible for severance payments to the extent
provided by Section 7(b).
(iv) Good Reason. The Executive may
terminate his employment for Good Reason (whether or not due
to his Retirement).
(v) Without Cause. The Company may
terminate the Executive's employment hereunder without Cause.
A notice by the Company of non-extension of the Term shall be
treated as a termination without Cause as of the last day of
the Term.
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(vi) Resignation without Good Reason.
The Executive may resign his employment without Good Reason
(whether or not due to his Retirement) upon 180 days written
notice to the Company.
(b) Notice of Termination. Any termination of
the Executive's employment by the Company or by the Executive under
this Section 6 (other than termination pursuant to paragraph (a)(i))
shall be communicated by a written notice to the other party hereto
indicating the specific termination provision in this Agreement relied
upon, setting forth in reasonable detail any facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and specifying a Date of
Termination which, except in the case of termination for Cause or
Disability, shall be at least thirty days (or such longer period
provided by Section 6(a)(vi)) following the date of such notice (a
"Notice of Termination"); provided, the Company may pay out such notice
period instead of employing the Executive.
7. Severance Payments and Benefits
(a) Termination for any Reason. In the event the
Executive's employment with the Company is terminated for any reason,
the Company shall pay the Executive (or his beneficiary in the event of
his death) any unpaid Annual Base Salary that has accrued as of the
Date of Termination, any unreimbursed expenses due to the Executive and
an amount for any accrued but unused vacation days and any earned but
unpaid bonus for any fiscal year of the Company completed prior to the
date of such termination. The Executive shall also be entitled to
accrued, vested benefits under the Company's benefit plans and programs
as provided therein. The Executive shall be entitled to the cash
severance payments described below only as set forth herein and the
provisions of this Section 7 shall supersede in their entirety any
severance payment provisions in any severance plan, policy, program or
arrangement maintained by the Company.
(b) Terminations without Cause or for Good
Reason. Except as otherwise provided by Section 7(c) with respect to
certain terminations of employment in connection with a Change in
Control, if the Executive's employment shall terminate without Cause
(pursuant to Section 6(a)(v)), or for Good Reason (pursuant to Section
6(a)(iv)), the Company shall (subject to the Executive's entering into
a Separation and Release Agreement with the Company in substantially
the form attached hereto as Exhibit C (the "Release")):
(i) Pay to the Executive an amount
equal to the product of (A) the sum of his then current (i)
Annual Base Salary and (ii) Target Bonus for the year of
termination, and (B) two; payable in equal monthly
installments during the period beginning on the Date of
Termination and ending on the second anniversary thereof;
provided, however, that no amount shall be payable pursuant to
this Section 7(b)(i) on or following the date the Executive
first (i) violates any of the covenants set forth in Section
9(a) or 9(b), or (ii) materially violates any of the covenants
set forth in Section 9(c), 9(e) or 9(f);
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(ii) Continue to provide the Executive
with all health and welfare benefits and perquisites which he
was participating in or receiving as of the Date of
Termination until the earlier of (A) the second anniversary of
the Date of Termination or (B) the date the Executive first
(i) violates any of the covenants set forth in Section 9(a) or
9(b), or (ii) materially violates any of the covenants set
forth in Section 9(c), 9(e) or 9(f). If such benefits cannot
be provided under the Company's programs, such benefits and
perquisites will be provided on an individual basis to the
Executive such that his after-tax costs will be no greater
than the costs for such benefits and perquisites under the
Company's programs;
(iii) Notwithstanding any provision to
the contrary in any Option or RSU agreement, cause all (A)
Retention RSUs and Retention Options not vested or exercisable
as of the Date of Termination to remain or become vested and
remain exercisable in accordance with the terms and conditions
of the applicable Retention Option or Retention RSU agreement
and (B) except as otherwise provided by Section 7(f) with
respect to certain terminations of employment due to the
Executive's Retirement, Options and RSUs (other than the
Retention Options and the Retention RSUs) then held by the
Executive to continue to become vested and exercisable in
accordance with their terms as if the Executive had remained
employed by the Company until the second anniversary of the
Date of Termination (and all Options and RSUs (other than the
Retention Options and the Retention RSUs) that do not become
vested and exercisable on or prior to the second anniversary
of the Date of Termination shall thereupon be forfeited);
(iv) Pay to the Executive a Pro-Rata
Bonus, as defined in Section 7(d), when bonuses are paid for
the year of termination based on actual results and the
relative portion of the fiscal year during which the Executive
was employed.
(c) Certain Terminations in connection with a
Change in Control. If the Executive's employment shall terminate
without Cause (pursuant to Section 6(a)(v)) or for Good Reason
(pursuant to Section 6(a)(iv)) within six months prior to a Change in
Control or during the 12 month period immediately following such Change
in Control, the Company shall (subject to the receipt of the Release):
(i) Pay to the Executive an amount
equal to the product of (A) the sum of his then current (i)
Annual Base Salary and (ii) Target Bonus for the year of
termination, and (B) two; payable in equal monthly
installments during the period beginning on the Date of
Termination and ending on the second anniversary thereafter;
provided, however, that no amount shall be payable pursuant to
this Section 7(c)(i) on or following the date the Executive
first (i) violates any of the covenants set forth in Section
9(a) or 9(b), or (ii) materially violates any of the covenants
set forth in Section 9(c), 9(e) or 9(f);
(ii) Continue to provide the Executive
with all health and welfare benefits and perquisites which he
was participating in or receiving as of
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the Date of Termination until the earlier of (A) the second
anniversary of the Date of Termination or (B) the date the
Executive first (i) violates any of the covenants set forth in
Section 9(a) or 9(b), or (ii) materially violates any of the
covenants set forth in Section 9(c), 9(e) or 9(f). If such
benefits cannot be provided under the Company's programs, such
benefits and perquisites will be provided on an individual
basis to the Executive such that his after-tax costs will be
no greater than the costs for such benefits and perquisites
under the Company's programs;
(iii) Notwithstanding any provision to
the contrary in any Option or RSU agreement, cause all Options
(including without limitation the Retention Options), RSUs
(including without limitation the Retention RSUs) and other
equity based compensation awards then held by the Executive to
become fully vested and exercisable with respect to all shares
subject thereto effective immediately prior to the Date of
Termination and all Options shall remain exercisable for the
remainder of the 10 year term;
(iv) Pay Executive a Pro-Rata Bonus, as
defined in Section 7(d), within 10 days following the date of
such termination.
(d) Termination by Reason of Disability or
Death. If the Executive's employment shall terminate by reason of his
Disability (pursuant to Section 6(a)(ii)) or death (pursuant to Section
6(a)(i)), then (i) the Company shall pay to the Executive (or
Executive's estate) a pro-rated amount of the Executive's Target Bonus
for the Contract Year in which the Date of Termination occurs (the
"Pro-Rata Bonus"); (ii) all Retention Options and Retention RSUs not
vested or exercisable as of the Date of Termination shall thereupon be
forfeited; provided, that in the alternative the Committee may, in its
sole discretion, cause all or any portion of any Retention Options or
Retention RSUs then held by the Executive to become vested and
exercisable effective as of the Date of Termination; and (iii) all
Options and RSUs (other than Retention Options and the Retention RSUs)
then held by the Executive shall be or become vested and shall remain
exercisable in accordance with the terms of the applicable Option or
RSU agreement.
(e) Termination for Cause or without Good
Reason. If the Executive's employment shall terminate by reason of his
voluntary resignation without Good Reason (pursuant to Section
6(a)(vi)) or by the Company for Cause (pursuant to Section 6(a)(iii)),
then (i) notwithstanding any provision to the contrary in any Option or
RSU agreement, all Retention RSUs and Retention Options not vested or
exercisable as of the Date of Termination shall thereupon be forfeited
and (ii) except as otherwise provided by Section 7(f) with respect to
certain terminations of employment due to the Executive's Retirement,
all Options and RSUs (other than the Retention Options and the
Retention RSUs) or other equity based compensation awards not vested or
exercisable as of the Date of Termination shall thereupon be forfeited
and, except as set forth in Section 7(a), the Company shall have no
further obligations to the Executive.
(f) Retirement. Notwithstanding any provision of
this Agreement to the contrary, if the Executive's employment shall be
terminated due to his Retirement (whether such termination is with or
without Good Reason), then (i) notwithstanding any
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provision to the contrary in any Option or RSU agreement(s), all
Retention RSUs and Retention Options not vested or exercisable as of
the Date of Termination shall thereupon be forfeited; (ii) all Options
(other than the Retention Options) then held by the Executive will vest
and expire in accordance with the terms set forth in the applicable
Option agreement; and (iii) all RSUs (other than the Retention RSUs)
then held by the Executive shall vest (and shares underlying such RSUs
shall be distributed to the Executive) in accordance with the terms set
forth in the applicable RSU agreement.
(g) Survival. The expiration or termination of
the Term shall not impair the rights or obligations of any party hereto
which shall have accrued hereunder prior to such expiration.
(h) No Mitigation. The Executive shall have no
obligation to mitigate any payments due hereunder. Any amounts earned
by the Executive from other employment shall not offset amounts due
hereunder, except as provided in this Section 7.
8. Parachute Payments.
(a) If it is determined by a nationally
recognized United States public accounting firm selected by the Company
and approved in writing by the Executive (which approval shall not be
unreasonably withheld) (the "Auditors") that any payment or benefit
made or provided to the Executive in connection with this Agreement or
otherwise (including without limitation any Option or RSU vesting)
(collectively, a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code (the "Parachute Tax"), then the Company
shall pay to the Executive, prior to the time the Parachute Tax is
payable with respect to such Payment, an additional payment (a
"Gross-Up Payment") in an amount such that, after payment by the
Executive of all taxes (including any Parachute Tax) imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Parachute Tax imposed upon the Payment. The amount
of any Gross-Up Payment shall be determined by the Auditors, subject to
adjustment, as necessary, as a result of any Internal Revenue Service
position. For purposes of making the calculations required by this
Agreement, the Auditors may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Sections 280G
and 4999 of the Code, provided that the Auditors' determinations must
be made with substantial authority (within the meaning of Section 6662
of the Code).
(b) The federal tax returns filed by the
Executive (and any filing made by a consolidated tax group which
includes the Company) shall be prepared and filed on a basis consistent
with the determination of the Auditors with respect to the Parachute
Tax payable by the Executive. The Executive shall make proper payment
of the amount of any Parachute Tax, and at the request of the Company,
provide to the Company true and correct copies (with any amendments) of
his federal income tax return as filed with the Internal Revenue
Service, and such other documents reasonably requested by the Company,
evidencing such payment. If, after the Company's payment to the
Executive of the Gross-Up Payment, the Auditors determine in good faith
that the amount of the Gross-Up Payment should be reduced or increased,
or such determination is made by the
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Internal Revenue Service, then within ten business days of such
determination, the Executive shall pay to the Company the amount of any
such reduction, or the Company shall pay to the Executive the amount of
any such increase; provided, however, that in no event shall the
Executive have any such refund obligation if it is determined by the
Company that to do so would be a violation of the Sarbanes-Oxley Act of
2002, as it may be amended from time to time; and provided, further,
that if the Executive has prior thereto paid such amounts to the
Internal Revenue Service, such refund shall be due only to the extent
that a refund of such amount is received by the Executive; and
provided, further, that (i) the fees and expenses of the Auditors (and
any other legal and accounting fees) incurred for services rendered in
connection with the Auditor's determination of the Parachute Tax or any
challenge by the Internal Revenue Service or other taxing authority
relating to such determination shall be paid by the Company and (ii)
the Company shall indemnify and hold the Executive harmless on an
after-tax basis for any interest and penalties imposed upon the
Executive to the extent that such interest and penalties are related to
the Auditor's determination of the Parachute Tax or the Gross-Up
Payment. Notwithstanding anything to the contrary herein, the
Executive's rights under this Section 8 shall survive the termination
of his employment for any reason and the termination or expiration of
this Agreement for any reason.
9. Certain Restrictive Covenants
(a) The Executive shall not, at any time during
the Term or during the 24-month period following the Date of
Termination (the "Restricted Period") directly or indirectly engage in,
have any equity interest in, or manage or operate any (i) Competitive
Business, (ii) new luxury accessories business that competes directly
with the existing or planned product lines of the Company or (iii)
business with respect to which Reed Krakoff is a designer or marketer
(or with respect to which Reed Krakoff otherwise performs similar
duties to those he performs for the Company); provided, however, that
the Executive shall be permitted to acquire a passive stock or equity
interest in such a business provided the stock or other equity interest
acquired is not more than five percent (5%) of the outstanding interest
in such business; and, provided, further, that this Section 9(a) shall
not apply in the event that, prior to July 1, 2007 (A) the Executive's
employment is terminated by reason of his voluntary resignation without
Good Reason (pursuant to Section 6(a)(vi)), (B) the Executive's
employment is terminated by the Company without Cause (pursuant to
Section 6(a)(v)) or (C) the Executive's employment is terminated by the
Executive for Good Reason (pursuant to Section 6(a)(iv)) and, in
connection with such termination, the Executive agrees in writing to
waive his right to receive all payments and benefits that he would
otherwise be entitled to receive pursuant to Section 7(b) or 7(c), as
applicable.
(b) During the Restricted Period, the Executive
will not, directly or indirectly recruit or otherwise solicit or induce
any employee, director, consultant, wholesale customer, vendor,
supplier, lessor or lessee of the Company to terminate its employment
or arrangement with the Company, otherwise change its relationship with
the Company, or establish any relationship with the Executive or any of
his Affiliates for any business purpose.
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(c) Except as required in the good faith opinion
of the Executive in connection with the performance of the Executive's
duties hereunder or as specifically set forth in this Section 9(c), the
Executive shall, in perpetuity, maintain in confidence and shall not
directly, indirectly or otherwise, use, disseminate, disclose or
publish, or use for his benefit or the benefit of any person, firm,
corporation or other entity any confidential or proprietary information
or trade secrets of or relating to the Company, including, without
limitation, information with respect to the Company's operations,
processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers,
marketing methods, costs, prices, contractual relationships, regulatory
status, business plans, designs, marketing or other business
strategies, compensation paid to employees or other terms of
employment, or deliver to any person, firm, corporation or other entity
any document, record, notebook, computer program or similar repository
of or containing any such confidential or proprietary information or
trade secrets. The parties hereby stipulate and agree that as between
them the foregoing matters are important, material and confidential
proprietary information and trade secrets and affect the successful
conduct of the businesses of the Company (and any successor or assignee
of the Company). Upon termination of the Executive's employment with
the Company for any reason, the Executive will promptly deliver to the
Company all correspondence, drawings, manuals, letters, notes,
notebooks, reports, programs, plans, proposals, financial documents, or
any other documents concerning the Company's customers, business plans,
designs, marketing or other business strategies, products or processes,
provided that the Executive may retain his rolodex, address book and
similar information and any non-proprietary documents he received as a
director.
(d) Notwithstanding Section 9(c), the Executive
may respond to a lawful and valid subpoena or other legal process or
other government or regulatory inquiry but shall give the Company
prompt notice thereof (except to the extent legally prohibited), and
shall, as much in advance of the return date as is reasonably
practicable, make available to the Company and its counsel copies of
any documents sought which are in the Executive's possession or to
which the Executive otherwise has reasonable access. In addition, the
Executive shall reasonably cooperate with and assist the Company and
its counsel at any time and in any manner reasonably requested by the
Company or its counsel (with due regard for the Executive's other
commitments if he is not employed by the Company) in connection with
any litigation or other legal process affecting the Company of which
the Executive has knowledge as a result of his employment with the
Company (other than any litigation with respect to this Agreement). In
the event of such requested cooperation, the Company shall reimburse
the Executive's reasonable out of pocket expenses.
(e) The Executive shall not disparage the
Company, any of its products or practices, or any of its directors,
officers, agents, representatives, or employees, either orally or in
writing, at any time. The Company (including without limitation its
directors) shall not disparage the Executive, either orally or in
writing, at any time. Notwithstanding the foregoing, nothing in this
Section 9(e) shall limit the ability of the Company or the Executive,
as applicable, to provide truthful testimony as required by law or any
judicial or administrative process.
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(f) The Executive agrees that all strategies,
methods, processes, techniques, marketing plans, merchandising schemes,
themes, layouts, mechanicals, trade secrets, copyrights, trademarks,
patents, ideas, specifications and other material or work product
("Intellectual Property") that the Executive creates, develops or
assembles in connection with his employment hereunder shall become the
permanent and exclusive property of the Company to be used in any
manner it sees fit, in its sole discretion. The Executive shall not
communicate to the Company any ideas, concepts, or other intellectual
property of any kind (other than in his capacity as an officer of the
Company) which (i) were earlier communicated to the Executive in
confidence by any third party as proprietary information, or (ii) the
Executive knows or has reason to know is the proprietary information of
any third party. Further, the Executive shall adhere to and comply with
the Company's Global Business Integrity Program Guide. All Intellectual
Property created or assembled in connection with the Executive's
employment hereunder shall be the permanent and exclusive property of
the Company. The Company and the Executive mutually agree that all
Intellectual Property and work product created in connection with this
agreement, which is subject to copyright, shall be deemed to be "work
made for hire," and that all rights to copyrights shall be vested in
the Company. If for any reason the Company cannot be deemed to have
commissioned "work made for hire," and its rights to copyright are
thereby in doubt, then the Executive agrees not to claim to be the
proprietor of the work prepared for the Company, and to irrevocably
assign to the Company, at the Company's expense, all rights in the
copyright of the work prepared for the Company.
(g) As used in this Section 9, the term
"Company" shall include the Company and any of its Affiliates or direct
or indirect subsidiaries.
(h) The Company and the Executive expressly
acknowledge and agree that the agreements and covenants contained in
this Section 9 are reasonable. In the event, however, that any
agreement or covenant contained in this Section 9 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other
respect, it will be interpreted to extend only over the maximum period
of time for which it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable,
all as determined by such court in such action.
10. Specific Performance. It is recognized and
acknowledged by the Executive that a breach of the covenants contained in
Section 9 will cause irreparable damage to the Company and its goodwill (or to
the Executive, as the case may be), the exact amount of which will be difficult
or impossible to ascertain, and that the remedies at law for any such breach
will be inadequate. Accordingly, the parties agree that in the event a party
breaches any covenant contained in Section 9, in addition to any other remedy
which may be available at law or in equity (or pursuant to Section 11 of this
Agreement or under any other agreement between the Company and the Executive),
the other party will be entitled to specific performance and injunctive relief.
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11. Claw-Backs
(a) In the event that the Executive violates any
of the covenants set forth in Section 9(a) or 9(b) or materially
violates any of the covenants set forth in Section 9(c), 9(e) or 9(f),
the Executive shall, in addition to any other remedy which may be
available (i) at law or in equity, (ii) pursuant to Section 10 or (iii)
pursuant to any applicable Option or RSU agreement, be required to pay
to the Company an amount equal to all Financial Gain that the Executive
has received during the 24-month period immediately preceding (or at
any time after) the date that the Executive first breaches such
covenant. In addition, all Retention Options that have not been
exercised prior to the date that the Executive violates any of the
covenants set forth in Section 9(a) or 9(b), or materially violates any
of the covenants set forth in Section 9(c), 9(e), or 9(f) and all
Retention RSUs that have not become vested prior to the date of such
breach shall thereupon be forfeited.
(b) If at any time during the Term the Executive
willfully commits any act of fraud, embezzlement, misappropriation,
material misconduct, or breach of fiduciary duty against the Company
(or any predecessor thereto or successor thereof) having a material
adverse impact on the Company, then (in addition to any remedy which
may be available under any applicable Option or RSU agreement) the
Executive shall be required to pay to the Company an amount equal to
all Financial Gain that the Executive has received at any time
following the date of such act. The Executive shall not be required to
make any payments of Financial Gain pursuant to this Section 11(b) to
the extent the Executive makes payments of such Financial Gain in
connection with the same act pursuant to Section 11(a).
12. Purchases and Sales of the Company's Securities. The
Executive agrees to use his reasonable best efforts to comply in all respects
with the Company's applicable written policies regarding the purchase and sale
of the Company's securities by employees, as such written policies may be
amended from time to time and disclosed to the Executive. In particular, and
without limitation, the Executive agrees that he shall not purchase or sell
Company securities (a) at any time that he possesses material non-public
information about the Company or any of its businesses; and (b) while an
employee during any "trading blackout period" as may be determined by the
Company and set forth in the Company's applicable written policies from time to
time.
13. Indemnification. The Executive shall be entitled to
indemnification set forth in the Company's Charter to the maximum extent allowed
under the laws of the State of Maryland, and he shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers against all costs, charges and
expenses incurred or sustained by him in connection with any action, suit or
proceeding to which he may be made a party by reason of his being or having been
a director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise or benefit plan as a director,
officer, employee or fiduciary at the request of the Company (other than any
dispute, claim or controversy arising under or relating to this Agreement).
Notwithstanding anything to the contrary herein, the Executive's rights under
this
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Section 13 shall survive the termination of his employment for any reason and
the expiration of this Agreement for any reason.
14. Delegation and Assignment. The Executive shall not
delegate his employment obligations under this Agreement to any other person.
The Company may not assign any of its obligations hereunder other than to any
entity that acquires (by purchase, merger or otherwise) all or substantially all
of the Voting Stock or assets of the Company. In the event of the Executive's
death while he is receiving severance hereunder the remainder shall be paid to
his estate.
15. Notices. Any written notice required by this
Agreement will be deemed provided and delivered to the intended recipient when
(a) delivered in person by hand; or (b) three days after being sent via U.S.
certified mail, return receipt requested; or (c) the day after being sent via by
overnight courier, in each case when such notice is properly addressed to the
following address and with all postage and similar fees having been paid in
advance:
If to the Company: Coach, Inc.
516 West 34th Street
New York, New York 10001
Atn: General Counsel
with a copy to: Latham & Watkins LLP
885 Third Avenue, Suite 1000
New York, NY 10022
Attn: Jed W. Brickner
If to the Executive: to him at the most recent address in
the Company's records.
Either party may change the address to which notices, requests, demands and
other communications to such party shall be delivered personally or mailed by
giving written notice to the other party in the manner described above.
16. Legal Fees. The Company shall pay the Executive's
reasonable attorneys' fees and disbursements incurred by him in connection with
the negotiation of this Agreement.
17. Binding Effect. This Agreement shall be for the
benefit of and binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and, where
applicable, assigns.
18. Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter
described in this Agreement and supersedes all prior agreements, understandings
and arrangements, both oral and written, between the parties with respect to
such subject matter; provided, however, that any written agreements between the
Executive and the Company concerning Options, RSUs or any other equity
compensation awards shall remain in full force and effect in accordance with
their terms. This Agreement may not be modified, amended, altered or rescinded
in any manner, except by written instrument signed by both of the parties
hereto; provided, however, that the waiver by either party of a breach or
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compliance with any provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or compliance.
19. Severability. In case any one or more of the
provisions of this Agreement shall be held by any court of competent
jurisdiction or any arbitrator selected in accordance with the terms hereof to
be illegal, invalid or unenforceable in any respect, such provision shall have
no force and effect, but such holding shall not affect the legality, validity or
enforceability of any other provision of this Agreement.
20. Dispute Resolution and Arbitration. In the event that
any dispute arises between the Company and the Executive regarding or relating
to this Agreement and/or any aspect of the Executive's employment relationship
with the Company, AND IN LIEU OF LITIGATION AND A TRIAL BY JURY, the parties
consent to resolve such dispute through mandatory arbitration under the
Commercial Rules of the American Arbitration Association ("AAA"), before a
single arbitrator in New York, New York. The parties hereby consent to the entry
of judgment upon award rendered by the arbitrator in any court of competent
jurisdiction. Notwithstanding the foregoing, however, should adequate grounds
exist for seeking immediate injunctive or immediate equitable relief, any party
may seek and obtain such relief. The parties hereby consent to the exclusive
jurisdiction in the state and Federal courts of or in the State of New York for
purposes of seeking such injunctive or equitable relief as set forth above. Any
and all out-of-pocket costs and expenses incurred by the parties in connection
with such arbitration (including attorneys' fees) shall be allocated by the
arbitrator in substantial conformance with his or her decision on the merits of
the arbitration.
21. Choice of Law. The Executive and the Company intend
and hereby acknowledge that jurisdiction over disputes with regard to this
Agreement, and over all aspects of the relationship between the parties hereto,
shall be governed by the laws of the State of New York without giving effect to
its rules governing conflicts of laws.
22. Section Headings. The section headings contained in
this Agreement are for reference purposes only and shall not affect in any
manner the meaning or interpretation of this Agreement.
23. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
24. Force Majeure. Neither Company nor the Executive
shall be liable for any delay or failure in performance of any part of this
Agreement to the extent that such delay or failure is caused by an event beyond
its reasonable control including, but not be limited to, fire, flood, explosion,
war, strike, embargo, government requirement, acts of civil or military
authority, and acts of God not resulting from the negligence of the claiming
party.
25. Right of Offset. The Company may offset any payment
to be made to the Executive pursuant to this Agreement by any amount that the
Executive owes to the Company (including without limitation any amount that the
Executive may be required to pay to the Company pursuant to Section 11) as of
the time such payment would otherwise be made. This
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right of offset shall be cumulative (but not duplicative) with any similar
obligation with respect to which the Executive may be subject under any other
agreement with the Company. Notwithstanding the foregoing, no amount of (a)
Annual Base Salary or Bonus deferred by the Executive on or following the
Effective Date pursuant to any deferred compensation plan or arrangement
maintained by the Company, or (b) compensation deferred by the Executive prior
to the Effective Date pursuant to any deferred compensation plan or arrangement
maintained by the Company shall be subject to the Company's right of offset
described in this Section 25.
26. Withholding. The Company shall be entitled to
withhold from any amounts payable under this Agreement any federal, state, local
or foreign withholding or other taxes or charges which the Company is required
to withhold. The Company shall be entitled to rely on an opinion of counsel if
any questions as to the amount or requirement of withholding shall arise.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
COMPANY
By: _________________________________________________
Its: ________________________________________________
EXECUTIVE
_____________________________________________________
Lew Frankfort
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