Employment Agreement - Liz Claiborne Inc. and Paul R. Charron
Liz Claiborne, Inc.
1441 Broadway
New York, NY 10018
September 19, 1996
Mr. Paul R. Charron
70 Oxridge Lane
Darien, Connecticut 06820
Dear Paul:
In light of your promotion to the position of Chairman of the Board
of Liz Claiborne, Inc. ("Company"), which position you hold in addition to your
positions of Chief Executive Officer and President of the Company, you and the
Company desire to amend certain aspects of your employment and compensation
arrangements, including certain of those contained in your employment agreement
with the Company dated May 9, 1994, as amended by a letter agreement between us
dated November 20, 1995 (such original employment agreement, as so amended, your
"Employment Agreement"). Unless otherwise noted, capitalized terms used but not
defined in this letter shall have the meanings given such terms in the
Employment Agreement. We hereby agree as follows:
1. Section 2(a) of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"During your term of employment, you will hold the titles and
offices of, and serve in the positions of, Chairman and Chief
Executive Officer of the Company, together with other title(s) and
office(s) as you and the Board of Directors of the Company (the
"Board of Directors") shall from time to time agree. You shall
report to the Board of Directors and shall perform such specific
duties and services as Chairman and Chief Executive Officer
(including service as an officer, director or equivalent position of
any subsidiary, affiliated company or venture of the Claiborne
Group, without additional compensation) as the Board of Directors
shall reasonably request consistent with your position. Your
performance
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September 19, 1996
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shall be reviewed periodically by the Board of Directors."
2. Section 4(a) of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"Effective as of May 16, 1996, the Company will pay you a base
salary (your "Annual Base Salary") at an annual rate of not less
than One Million Dollars ($1,000,000), subject to annual review by
the Compensation Committee of the Board of Directors (the
"Compensation Committee") and, in the discretion of such Committee,
increase from time to time; provided that your Annual Base Salary
shall be increased on each of the first through fourth anniversaries
of May 16, 1996, inclusive, during the term hereof (each, an
"Increase Date") by an amount equal to the applicable Increase Rate
times your Annual Base Salary in effect immediately prior to such
increase; provided further, that your Annual Base Salary that is in
excess of One Million Dollars ($1,000,000) in any fiscal year of the
Company shall be automatically deferred and credited to your
Deferred Salary Account pursuant to the Liz Claiborne Retirement
Income Accumulation Plan. As used herein, the term "Increase Rate"
shall mean (x) the percentage increase in the Consumer Price Index
during the twelve-month period immediately preceding the Increase
Date, but not to exceed (y) the annual salary increase guideline
approved by the Compensation Committee (typically in March) and
generally applicable to all executive officers of the Company. As
used herein, the term "Consumer Price Index" means the Consumer
Price Index for All Urban Consumers - New York, prepared by the
Bureau of Labor Statistics of the United States Department of Labor,
or if that Consumer Price Index is not then being published, the
most nearly comparable successor index which you and the Company may
agree upon or, if we fail to agree, an index to be designated by the
Company's independent certified public accountants, with such
adjustments necessary to permit us to carry out the provisions of
this paragraph, and the determination of such accountants shall be
final and binding for purposes hereof."
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September 19, 1996
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3. The following sentence is hereby added as the last sentence of
Section 4(b) of the Employment Agreement:
"Your target bonus under such Section 162(m) Plan for (i) the 1996
fiscal year shall be as previously established by the Compensation
Committee, and (ii) for each subsequent fiscal year of the Company
through the 2000 fiscal year shall be set at a level equal to 75% of
your Annual Base Salary at the rate in effect on the first day of
such fiscal year."
4. The following sentence is hereby added as the last sentence of
Section 4(d) of the Employment Agreement:
"You shall be granted in respect of the 1996 fiscal year, and in
respect of each fiscal year of the Company through the 2000 fiscal
year, stock options covering 50,000 shares of Common Stock, under
and in accordance with the terms and conditions of, the Company's
1992 Stock Incentive Plan (each, an "Annual Option Grant"). All such
options shall have an exercise price equal to the fair market value
of the underlying Common Stock on the date of grant; such options
shall be granted on such date during the year (typically in
December) on which the Compensation Committee of the Board makes its
general annual granting of options to the senior executives of the
Company, and shall be subject to such vesting schedule and other
terms as are applicable to options generally granted to such other
senior executives; provided that options covering 10,000 shares of
Common Stock within each Annual Option Grant ("Career Options")
shall have a vesting schedule providing that no such Career Options
shall vest unless you are employed full-time by the Company as
Chairman and Chief Executive Officer under this Employment Agreement
on December 28, 2002, except that such special Career Option vesting
restriction shall be deemed to have been satisfied upon your earlier
Termination of Employment by reason of death or Disability or upon a
Change of Control Termination (such capitalized terms having the
meanings
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September 19, 1996
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ascribed to them under the Retirement Income Accumulation Plan).
5. The Company has adopted as of the date hereof for your benefit
the Liz Claiborne, Inc. Retirement Income Accumulation Plan, a copy of which has
been provided to you.
6. Except to the extent specifically amended hereby, the provisions
of the Employment Agreement shall remain unmodified, and as amended herein the
Employment Agreement remains in full force and effect.
If the foregoing correctly sets forth your understanding, please
indicate your acceptance by executing the enclosed copy of this letter in the
space provided below, following which this letter will constitute a legally
binding amendment to the Employment Agreement as of the date first written
above.
Very truly yours,
LIZ CLAIBORNE, INC.
By: /s/ Samuel Miller
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Authorized Signature
ACCEPTED AND AGREED:
/s/ Paul R. Charron
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Paul R. Charron
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LIZ CLAIBORNE
RETIREMENT INCOME ACCUMULATION PLAN
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September 19, 1996
Page i
ARTICLE Page
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Preamble.......................................................... 1
1 Definitions....................................................... 1
2 Credits to Accounts............................................... 4
3 Benefits.......................................................... 6
4 Beneficiaries..................................................... 8
5 Administration.................................................... 9
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September 19, 1996
Page 1
PREAMBLE
Liz Claiborne, Inc. (the "Company") hereby adopts this Liz Claiborne
Retirement Income Accumulation Plan (the "Plan") for the benefit of Paul R.
Charron, who currently holds the position of Chairman, Chief Executive Officer
and President of the Company (the "Participant"). The Plan is intended to
constitute an arrangement that is, for purposes of the Employee Retirement
Income Security Act of 1974, unfunded and maintained primarily for the purpose
of providing deferred compensation for a member of management. The Plan reads as
follows:
ARTICLE 1
DEFINITIONS
The following terms when used in this Plan have the designated
meanings unless a different meaning is clearly required by the context.
1.1 Base Salary means, for any calendar year, the base salary
payable to the Participant for such year pursuant to the terms of the Employment
Agreement.
1.2 Beneficiary means the person or persons designated pursuant to
Article 4 to receive a benefit in the event of the Participant's death before
his benefit under this Plan has been paid in full.
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September 19, 1996
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1.3 Cash Bonus means the amount payable to the Participant (without
regard to any bonus deferral elected by the Participant) in respect of a
specified Fiscal Year pursuant to the Company's Section 162(m) Cash Bonus Plan
or any other bonus arrangement in which the Participant participates. Unless the
Committee expressly determines otherwise, Cash Bonus shall not include any
amounts related to the grant, vesting or exercise of stock options, restricted
shares, or other equity-based awards.
1.4 Change of Control Termination means Termination of Employment
(a) by the Company other than for "Cause" as defined in Section 6 of the
Employment Agreement, or (b) by the Participant for "Good Reason" as defined in
Section 7 of the Employment Agreement, in either case only on or after the
occurrence of a "Change of Control" as defined in Section 7 of the Employment
Agreement.
1.5 Committee means the Compensation Committee of the Company's
Board of Directors as constituted from time to time.
1.6 Deferred Salary Account means the record maintained on the books
of the Company to reflect deferred amounts of salary credited pursuant to
Section 2.2 and earnings thereon.
1.7 Disability means a condition that qualifies the Participant for
benefits under the long-term disability insurance program generally applicable
to the Company's employees.
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September 19, 1996
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1.8 Employment Agreement means the employment agreement between the
Participant and the Company dated as of May 9, 1994, as amended and in effect
from time to time.
1.9 Fiscal Year means the Company's fiscal year.
1.10 Imputed Earnings Rate means, (a) for any Fiscal Year beginning
on or before the first to occur of (x) December 30, 2001 and (y) the
Participant's Termination of Employment, the greater of (i) the Rate of Return
for such Fiscal Year or (ii) the appropriate Federal mid-term rate compounded
annually (as defined and published pursuant to Section 1274(d) of the Internal
Revenue Code of 1986, as amended) for the first business day of such Fiscal Year
for which such rate is determined and (b) for any Fiscal Year beginning
thereafter the rate specified in (ii).
1.11 Rate of Return for any Fiscal Year means the Company's
after-tax rate of return on average capital (excluding cash) for such Fiscal
Year, determined by dividing (a) the product obtained by multiplying (i) the
Company's operating income for such Fiscal Year by (ii) the reciprocal of the
Company's effective tax rate for such Fiscal Year, by (b) the amount determined
by subtracting (i) the 52 week average of the Company's portfolio of cash
equivalents and marketable securities for such Fiscal Year, from (ii) the sum of
(A) the average of the Company's beginning and ending shareholders' equity for
such Fiscal Year plus (B) the average long-term debt of the Company outstanding
during such Fiscal Year, all as illustrated in the computations set forth in
Exhibit A. The Rate of Return shall be determined in accordance
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September 19, 1996
Page 4
with generally accepted accounting principles ("GAAP") and in a manner
consistent with the methods used in the Company's reports on Forms 10-K and
10-Q, without regard to changes in accounting principles or to extraordinary
items as determined by the Company's independent public accountants in
accordance with GAAP.
1.12 Retirement Income Account means the record maintained on the
books of the Company to reflect amounts credited pursuant to Section 2.1 and
earnings thereon.
1.13 Termination of Employment means cessation for any reason of the
Participant's full-time employment by the Company as Chairman and Chief
Executive Officer under the Employment Agreement.
ARTICLE 2
CREDITS TO ACCOUNTS
2.1 Retirement Income Account . As of January 1, 1996, and on the
first day of each Fiscal Year thereafter through the 2001 Fiscal Year, the
Retirement Income Account shall be credited with an amount equal to fifteen
percent of the sum of (a) the Participant's Base Salary for the Fiscal Year then
beginning plus (b) the Cash Bonus (if any) payable to the Participant in respect
of the Fiscal Year then ending. For purposes of this Section 2.1, the
Participant's Base Salary for 1996 shall be deemed to be one million dollars.
2.2 Deferred Salary Account. As of December 29, 1996 and the
first day of each Fiscal Year thereafter, the Deferred Salary Account shall be
credited with the amount of
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September 19, 1996
Page 5
the Participant's Base Salary for the Fiscal Year then beginning that is in
excess of one million dollars and therefore deferred pursuant to the Employment
Agreement.
2.3 Imputed Earnings. As of the last day of each Fiscal Year, the
Retirement Income Account and the Deferred Salary Account shall each be credited
with an amount equal to the product of (a) the balance standing credited to such
account as of the first day of such Fiscal Year, multiplied by (b) the Imputed
Earnings Rate for such Fiscal Year until all payments have been made pursuant to
Section 3.3.
2.4 Accounts Confer No Interest in Assets. The crediting of amounts
to the Accounts is merely a bookkeeping record and shall not confer on the
Participant any right, title or interest in or to any specific assets of the
Company.
2.5 Account Statements. The Company shall furnish a written
statement to the Participant setting forth the amount standing credited to the
Accounts as of the end of each Fiscal Year.
ARTICLE 3
BENEFITS
3.1 Vesting
3.1.1 Retirement Income Account. The Participant's right to
be paid, pursuant to the terms of the Plan, the amount standing credited to the
Retirement Income
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September 19, 1996
Page 6
Account shall become fully vested and nonforfeitable on the earliest of (a)
December 28, 2002, provided that on such date the Participant is employed
full-time by the Company as Chairman and Chief Executive Officer pursuant to the
Employment Agreement, or (b) the Participant's Termination of Employment by
reason of death or Disability, or (c) a Change of Control Termination. Without
limiting any other provision of the Plan, upon the Participant's Termination of
Employment prior to December 28, 2002 for any reason other than death or
Disability or in a Change of Control Termination, his rights to payment from the
Retirement Income Account shall be forfeited in their entirety.
3.1.2 Deferred Salary Account. The Participant's right to be
paid, pursuant to the terms of the Plan, the amount standing credited to the
Deferred Salary Account shall be at all times fully vested and nonforfeitable.
3.2 Benefit. Upon the Participant's Termination of Employment, he
(or his Beneficiary in the event of his death) shall be entitled to receive the
sum of the amounts standing credited on the date of Termination of Employment to
(a) the Deferred Salary Account and (b) the Retirement Income Account, but only
to the extent that his right to such amount has become vested and nonforfeitable
pursuant to Section 3.1.1. If the Participant's Termination of Employment is on
account of Disability or death prior to December 28, 2002, he or his Beneficiary
shall be entitled to receive in addition an amount equal to fifteen percent of
the Cash Bonus (if any) payable to the Participant in respect of the Fiscal Year
in which his death or Disability occurred. Payment shall be made in accordance
with Section 3.3.
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September 19, 1996
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3.3 Payment
3.3.1 Method of Payment. The amount described in Section 3.2
shall be paid in one lump sum cash payment made as soon as practicable following
the first day of the Fiscal Year following the Participant's Termination of
Employment unless at least two years prior to such Termination of Employment
(but in any event no later than December 31, 2000) the Participant shall have
irrevocably elected in writing to receive payment in annual installments over a
period not to exceed fifteen years. Each annual installment shall be determined
by dividing (a) the total balance standing credited to the two Accounts as of
the first day of each Fiscal Year in the payment period, by (b) the number of
payments still to be made.
3.3.2 Death. In the event that the Participant shall die
following Termination of Employment but before his benefit is fully paid, the
remaining installments shall be paid to his Beneficiary provided, however, that
the Company in its discretion may determine at any time to pay the benefit in a
smaller number of installments or in a lump sum.
3.4 Source of Payment. The benefit payable hereunder shall be a
general liability of the Company. The claim of the Participant or his
Beneficiary to such benefit shall at all times be merely the claim of an
unsecured creditor of the Company. No trust, security, escrow, or similar
account need be established for the purpose of paying the benefit hereunder, but
the Company may in its discretion establish a custodial account or "rabbi trust"
(or other arrangement having equivalent taxation characteristics under the
Internal Revenue Code) to hold assets of the Company, subject to the claims of
the Company's creditors in the event of its
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September 19, 1996
Page 8
insolvency, for the purpose of paying such benefit. If the Company establishes
such an account or trust, amounts paid therefrom shall discharge the obligations
hereunder to the extent of the payments so made.
3.5 Withholding. All amounts credited to the Accounts pursuant to
the Plan and all payments under the Plan shall be subject to any applicable
withholding requirements imposed by any tax (including, without limitation,
FICA) or other law. The Company shall have the right to require as a condition
of any crediting to an Account or of any payment hereunder that the Participant
remit to the Company an amount sufficient in its opinion to satisfy all
applicable withholding requirements.
ARTICLE 4
BENEFICIARIES
4.1 Beneficiary Designation.
4.1.1 Designation. The Participant may from time to time
designate a Beneficiary to receive payment pursuant to Article 3 in the event of
his death.
4.1.2 Absence of Beneficiary. In the event that there is no
properly designated Beneficiary living at the time of the Participant's death,
his benefit hereunder shall be paid to his estate.
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September 19, 1996
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4.2 Payment to Incompetent. If any person entitled to benefits under
this Plan shall be a minor or shall be physically or mentally incompetent in the
judgment of the Company, such benefits may be paid in any one or more of the
following ways, as the Company in its discretion shall determine:
4.2.1 to the legal representatives of such minor or
incompetent person;
4.2.2 directly to such minor or incompetent person; or
4.2.3 to a parent or guardian of such minor or incompetent
person, to the person with whom such minor or incompetent person resides, or to
a custodian for such minor under the Uniform Gifts to Minors Act (or similar
statute) of any jurisdiction.
Payment to any person in accordance with the foregoing provisions of
this Section 4.2 shall to that extent discharge the Company, which shall not be
required to see to the proper application of any such payment.
ARTICLE 5
ADMINISTRATION
5.1 Administration. Authority to administer the Plan shall be vested
in the Committee, which shall have the power and discretion to make and enforce
rules and regulations for the administration of the Plan, construe all terms,
provisions, conditions and limitations of the Plan and resolve ambiguities,
inconsistencies and omissions, and determine all
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September 19, 1996
Page 10
questions arising out of or in connection with the provisions of the Plan or its
administration. The Committee may delegate authority to agents and other persons
to act on its behalf in carrying out the provisions and administration of the
Plan, and to take or direct any action required or advisable with respect to the
administration of the Plan. The Committee's determinations under the Plan shall
be conclusive and binding on all persons, subject to the right of appeal set
forth in Section 5.2.
5.2 Claims Procedure. If the Committee denies any claim for benefits
under the Plan it shall notify the Participant (or Beneficiary) of such denial
by written notice which shall set forth the specific reasons for such denial,
and the Participant (or Beneficiary) shall be afforded a reasonable opportunity
for a full and fair review by the Committee of the decision to deny the claim.
5.3 Indemnity. The Company shall indemnify and hold each employee,
officer and director of the Company harmless against any and all loss,
liability, claim, damage, cost and expense which may arise by reason of, or be
based upon, any matter connected with or related to the Plan or the
administration of the Plan (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or in settlement of any such claim) to the
fullest extent permitted under applicable law, except when the same is
judicially determined to be due to the gross negligence or willful misconduct of
such employee, officer or director.
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September 19, 1996
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5.4 Payment of Expenses. All expenses of Plan administration
shall be paid by the Company.
5.5 Right to Amend or Terminate. The Company may not amend the
Plan in any respect without the consent of the Participant.
5.6 Spendthrift Clause. No benefit, distribution or payment under
the Plan may be anticipated, assigned (either at law or in equity), alienated or
subject to attachment, garnishment, levy, execution or other legal or equitable
process whether pursuant to a "qualified domestic relations order" as defined in
section 414(p) of the Internal Revenue Code or otherwise.
5.7 Separability. If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions of the Plan, and the Plan shall be construed and enforced as if such
provision had not been included therein.
5.8 Captions. The captions in this document and in the table of
contents are inserted only as a matter of convenience and for reference and in
no way define, limit, enlarge or describe the scope or intent of the Plan and
shall in no way affect the Plan or the construction of any provision thereof.
5.9 Employment. The establishment of the Plan shall not be construed
to confer upon the Participant any legal right to be retained in the employ of
the Company, or affect any right which the Company may have to terminate such
employment, or give the
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September 19, 1996
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Participant or any other person any right to benefits except to the extent
expressly provided for hereunder.
5.10 Governing Law and Construction. The Plan is intended to
constitute an unfunded, nonqualified deferred compensation arrangement. Except
to the extent preempted by Federal law, all rights under the Plan shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be wholly performed within such state and
without regard to principles of conflict of laws. No action shall be brought by
or with respect to benefits due under this Plan unless the person bringing such
action has timely exhausted the Plan's claim review procedure. Any such action
must be commenced within three years from the earlier of (a) the date a final
determination denying such benefit, in whole or in part, is issued under the
Plan's claim review procedure or (b) the date such individual's cause of action
first accrued. Any dispute, controversy or claim arising out of or in connection
with this Plan (including the applicability of this arbitration provision) and
not resolved pursuant to the Plan's claim review procedure shall be determined
and settled by arbitration conducted by the American Arbitration Association
("AAA") in the County and State of the Company's principal place of business and
in accordance with the then existing rules, regulations, practices and
procedures of the AAA. Any award in such arbitration shall be final, conclusive
and binding upon the parties to the arbitration and may be enforced by either
party in any court of competent jurisdiction. Each party to the arbitration will
bear its own costs and fees (including attorney's fees).
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September 19, 1996
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IN WITNESS WHEREOF, LIZ CLAIBORNE, INC. has caused this instrument
to be executed by its duly authorized officer this 19th day of September, 1996.
LIZ CLAIBORNE, INC.
By: /s/ Samuel Miller
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Authorized Signature
ATTEST:
/s/ ILLEGIBLE
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