Executive Termination Benefits Agreement - Liz Claiborne Inc. and Frank S. Sowinski
LIZ CLAIBORNE, INC.
EXECUTIVE TERMINATION BENEFITS AGREEMENT
This Executive Termination Benefits Agreement (this "Agreement"), dated as
of the 29th day of January, 2004, is by and between LIZ CLAIBORNE, INC., a
Delaware corporation (the "Company"), and FRANK S. SOWINSKI (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
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shareholders, and for other good and valuable consideration, the Company and the
Executive agree as follows:
1. Term of Agreement.
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(a) Except as otherwise provided in Section 1(b) below, (i) this Agreement
shall be effective as of the date hereof and shall continue in effect through
December 31, 2006 and (ii) commencing on January 1, 2007 and each January 1
thereafter, this Agreement shall be automatically extended for one additional
year unless, not later than June 30th of the preceding year, either party to
this Agreement gives notice to the other that this Agreement shall not be
extended under this Section 1(a); provided, however, that no such notice by the
Company shall be effective, and this Agreement shall be extended for an
additional year, if a Change in Control or Potential Change in Control (both as
defined in Section 2 below) shall have occurred or occurs at any time prior to
the date of such notice or within the 12-month period beginning on the date of
such notice.
(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-sixth month period shall be referred to
hereinafter as the "Protected Period."
2. Change in Control and Potential Change in Control.
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(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
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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
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(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 Liz Claiborne, Inc. and any successor thereto, whether
by merger, reorganization, consolidation, and acquisition of substantially all
of its assets or any other means.
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3. Covered Termination.
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(a) In the event that 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 Executive in the
offices or positions, or substantially equivalent offices or
positions, of or with the Company, which 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 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 Executive pursuant to the Company's cash incentive
bonus plan), or to pay to the Executive any portion of any installment
of 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 2000
Stock
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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
Executive, in terms of the amount of the compensation opportunities so
provided, to those provided to 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 Executive in the event that
Executive's target long-term incentive compensation opportunity
(expressed as a percentage of 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
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; or
(ix) 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) 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 Executive's incapacity due to physical or
mental illness or other reasons beyond the control of Executive), and which
failure or refusal results in demonstrable direct and
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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 Executive's receipt of written notice from
the Company given after such 180 or 240 day period has run without 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 Executive's part
shall be deemed "willful" or "intentional" unless done, or omitted to be done,
by 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 Executive's complete inability to perform his/her
material duties, responsibilities and obligations will be made by a single
physician satisfactory to both Executive and the Company; provided that if
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 Executive and the Company. Executive shall have
the right to present to the Company and such physician such information and
arguments on Executive's behalf as Executive deems appropriate, including the
opinion of 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
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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 any 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.
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(a) In lieu of any other cash severance payments to which the Executive may
otherwise be entitled (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 two (2) times the amount of 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 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 (x) the date on
which a Change of Control occurred or (y) 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 greatest 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; or (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).
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(b) In 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 twenty four (24) 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 24-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 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 Executive
under any of the Company's "qualified" retirement plans as of the Executive's
date of termination of employment; and (ii) Executive's SERP account shall be
distributed to the Executive as provided under the terms of the SERP and in
accordance with Executive's distribution election then in effect.
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(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 awards, if any, granted to Executive under any of
the Company's stock incentive plans or other similar plans shall be subject to
the applicable terms (including without limitation, except where otherwise
specifically provided at the time such awards were granted, as to the
accelerated vesting thereof under the terms of such plan) of the applicable plan
and award agreement or certificate.
(e) In the case of a Covered Termination during the Protected Period, the
Company shall pay to the Executive all other amounts 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.
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(a) During the Protected Period, any termination of the Executive's
employment by the Executive for Good Reason or by the Company for 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 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.
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(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 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.
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(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 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 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.
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(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.
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(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
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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 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 sue 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 sue 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.
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(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 (x)
1.05 multiplied by (y) 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
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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), Executive is required, after notice to the Company
pursuant to Section 6(f), to pay an Excise Tax, 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. 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 penultinate 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 Executive under this Agreement by any amount owed, or allegedly owed, to
the Company by the Executive.
8. Arbitration; Payment of Legal Fees.
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(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
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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
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 Executive's fees and expenses as provided in Section 6 above.
9. Successors.
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(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 Executive hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his estate.
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10. Notices.
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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.
1441 Broadway
New York, NY 10047
Attention: Chief Executive Officer
with a copy to:
Liz Claiborne, Inc.
One Claiborne Avenue
North Bergen, NJ 07047
Attention: General Counsel
If to the Executive:
At the address set forth opposite Executive's name
on the signature page hereof
11. Governing Law.
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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.
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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 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 Chase Manhattan Bank 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
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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 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.
By: /s/ Lawrence D. McClure
-----------------------
Lawrence D. McClure
Senior Vice President - Human Resources
FRANK S. SOWINSKI
: /s/ Frank S. Sowinski
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Address: c/o Liz Claiborne, Inc.
1441 Broadway
New York, NY 10018
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