Exhibit 10.3
SAUCONY, INC.
13 Centennial Drive
Peabody, MA 01960
September 9, 2004
Dear Michael Jeppesen:
On August 2, 2004 Saucony, Inc., a Massachusetts corporation ("Saucony"),
announced publicly that it has retained the services of Chestnut Securities,
Inc. to advise it as to its strategic alternatives. These strategic alternatives
may include a Change in Control (as defined below) of Saucony.
Saucony desires to assure itself as to the continued availability of your
services while it assesses and, in its discretion, negotiates and implements
these strategic alternatives. In addition, should Saucony decide to pursue a
Change in Control, Saucony desires to provide you with additional incentive to
assist with and facilitate such a transaction. Therefore, subject to the terms
of, and as further provided for in, this letter agreement (this "Agreement"),
Saucony desires to offer and pay to you retention bonuses in the event it
completes a Change in Control on or prior to December 31, 2005.
Duties
As part of this Agreement, you agree to (1) perform all of your current
duties, as well as any other duties assigned to you pursuant to your role at
Saucony, in a professional and businesslike manner and (2) assist with and
facilitate in a constructive manner Saucony's assessment, negotiation and
implementation of various strategic alternatives Saucony may, in its discretion,
choose to pursue, including, without limitation, a Change in Control. You agree
that you will not interfere, directly or indirectly, by any act or failure to
act, with any Change in Control or any other strategic alternative.
Change in Control
If Saucony completes a Change in Control on or prior to December 31, 2005
and you have remained continuously employed full-time by Saucony at all times
from the date of this Agreement through the date of such Change in Control and
have performed your duties as described above, (i) Saucony will pay you a
retention bonus of $106,818.40 in a lump sum (reduced by any applicable
withholding taxes) within 30 days after it completes such Change in Control and
(ii) all options to purchase Saucony's capital stock granted to you with the
specific approval of Saucony's Board of Directors (which options by their terms
do not automatically vest upon the occurrence of such Change in Control) will
automatically vest as to 50% of the unvested shares subject thereto at such time
(with such 50% acceleration applied pro rata to all future vesting dates under
each such option). If, in addition to such continuous full-time employment
through the date of such Change in Control, you remain continuously employed
full-time by Saucony during the period ending six months after Saucony completes
such Change in Control (the "Post-Closing Period"), or your employment at
Saucony is terminated during the Post-Closing Period by Saucony without Cause
(as defined below) or by you for Good Reason (as defined below), Saucony will
pay you an additional retention bonus of $106,818.40 in a lump sum (reduced by
any applicable withholding taxes) within 30 days after the end of the
Post-Closing Period (or, if earlier, the date of your termination).
Nothing in this Agreement imposes any requirement on Saucony to assess,
negotiate, enter into or complete a Change in Control or any other strategic
alternative.
As used herein:
(a) "Cause" means (i) your willful misconduct in connection with your
employment or your failure to perform your material employment
responsibilities, which is not cured after notice and a reasonable
opportunity (not to exceed 20 days) to cure, or (ii) your conviction
of, or your entry of a pleading of guilty or nolo contendere to, any
crime involving moral turpitude or any felony.
(b) "Change in Control" means the acquisition by any person, corporation
or other entity (other than an Exempt Person (as defined below)) of
(i) beneficial ownership of capital stock of Saucony representing a
greater than 50.0% interest in the shares of Saucony's capital stock
entitled to vote generally in the election of directors, by means of
stock purchase, merger or other business combination (other than a
merger or other business combination with the primary purpose of
changing Saucony's jurisdiction of organization or a reorganization or
restructuring with the primary purpose of implementing a holding
company or other structure), or (ii) all or substantially all of the
assets of Saucony; provided, that, such an acquisition of beneficial
ownership of capital stock, or all or substantially all of the assets,
of Saucony by the resulting, surviving or acquiring person,
corporation or other entity in a merger or other business combination
(including, without limitation, an acquirer of all or substantially
all of the assets of Saucony) with Saucony (or an affiliate of such a
resulting, surviving or acquiring person, corporation or other entity)
pursuant to which the stockholders of Saucony immediately prior to
such merger or other business combination beneficially own at least a
majority of the capital stock of such resulting, surviving or
acquiring person, corporation or other entity (or an affiliate of such
resulting, surviving or acquiring person, corporation or other entity)
immediately following such merger or business combination shall not be
deemed to be a Change in Control.
(c) "Exempt Person" means John H. Fisher, Charles A. Gottesman or Merrill
F. Gottesman (each, a "Significant Stockholder") or any ancestor,
descendent, spouse, sibling or spouse of a sibling of a Significant
Stockholder or any entity affiliated with any Significant Stockholder.
(d) "Good Reason" means (i) a reduction in your annual base salary as in
effect on the date Saucony completed the relevant Change in Control,
(ii) a change in the location at which you perform your principal
duties for Saucony to a new location more than 30 miles from the
location at which you performed your principal duties for Saucony on
the date Saucony completed the relevant Change in Control or (iii) a
material diminution of your overall authority or responsibilities from
those customarily assigned to [a/an] [For M.U.: executive; for S.W.
and M.J.: senior] vice president of Saucony. Notwithstanding the
occurrence of any event described in clauses (i), (ii) or (iii) of the
immediately preceding sentence, such occurrence shall not be deemed to
constitute Good Reason if, within 20 days of your written notice to
Saucony describing in reasonable detail the occurrence of such event
(the "Good Reason Notice"), such event has been corrected (and any
termination of your employment for Good Reason based upon the
occurrence of such event shall not be effective until the date 21 days
after your delivery to Saucony of the Good Reason Notice).
Taxes
Any payments under this Agreement shall be made without regard to whether
the deductibility of such payments (or any other payments contingent upon a
change in control as such terms are defined for purposes of Section 280G
("Section 280G") of the Internal Revenue Code of 1986, as amended (the "Code")
to or for your benefit (collectively, "Change in Control Payments")) would be
limited or precluded by Section 280G and without regard to whether such payments
(or any other Change in Control Payments) would subject you to the federal
excise tax levied on certain "excess parachute payments" under Section 4999 of
the Code; provided, that, if the total of all Change in Control Payments to or
for your benefit, after reduction for all federal, state and local taxes
(including the tax described in Section 4999 of the Code, if applicable) with
respect to such payments (the "Total After-Tax Payments"), would be increased by
the limitation or elimination of any payments under this Agreement or any Change
in Control Payments under other agreements or arrangements between you and
Saucony, then the amounts payable under this Agreement (or the Change in Control
Payments under such other agreements or arrangements as Saucony and you shall
mutually determine) shall be reduced to the extent, and only to the extent,
necessary to maximize the Total After-Tax Payments. The determination as to
whether and to what extent the payments under this Agreement (or the Change in
Control Payments under such other agreements or arrangements) are required to be
reduced in accordance with the preceding sentence shall be made at Saucony's
expense by a certified public accounting firm designated by Saucony's Board of
Directors prior to a Change in Control. In the event of any underpayment or
overpayment under this Agreement (or such other agreements or arrangements) as
determined by the firm designated in accordance with the preceding sentence, the
amount of such underpayment or overpayment shall promptly be paid to you or
refunded to Saucony, as the case may be, with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
At Saucony's request, direction and expense, Wilmer Cutler Pickering Hale
and Dorr LLP is performing an analysis of the effects under Section 280G of this
Agreement and other arrangements between you and Saucony to identify possible
tax planning and other alternatives for you and Saucony; it being understood
that this process may not result in the reduction of your potential liability,
if any, under Section 280G and that Saucony is not committing to enter into any
additional arrangements for the purpose of limiting your 280G liability.
Assignment
This Agreement binds Saucony, its successors or assigns, and your heirs and
the personal representatives of your estate. Without Saucony's prior written
consent, you may not assign or delegate this Agreement or any or all rights,
duties, obligations, or interests under it. References in this Agreement to
Saucony applicable to any time following a Change in Control include, if
applicable in the context, Saucony's successor, assign or acquirer in connection
with such Change in Control.
At-Will Employment
Nothing in this Agreement changes the at-will nature of your employment by
Saucony. Without limiting the foregoing, if your employment by Saucony
terminates prior to the completion of a Change in Control for which Saucony
would otherwise be obligated to pay you a retention bonus or accelerate the
vesting of any stock options pursuant to this Agreement, Saucony will not be
required to pay you any retention bonus or accelerate the vesting of any stock
options, regardless of the circumstances of the termination of your employment,
whether the termination was with Cause (including, without limitation, your
failure to perform your obligations set forth in this Agreement under the
heading "Duties" or otherwise) or without Cause or whether the termination was
at your or Saucony's election. In addition, if your employment by Saucony
terminates following a Change in Control and prior to the end of any
Post-Closing Period for which Saucony would otherwise be obligated to pay you a
retention bonus pursuant to this Agreement, Saucony will not be required to pay
you such retention bonus if your employment at Saucony is terminated during the
Post-Closing Period by Saucony for Cause or by you without Good Reason.
Release and Non-Disparagement
(a) In partial consideration of Saucony's agreement to pay to you
retention bonuses subject to and on the terms and conditions set forth
in this Agreement:
(i) You hereby fully, forever, irrevocably and unconditionally release
and discharge Saucony, its directors, officers, stockholders, affiliated
entities, agents, employees and representatives (the "Released Parties"),
from any and all claims, causes of action, agreements, promises,
liabilities, obligations and expenses ("Claims"), of every kind and nature,
whether arising from any act, omission, misrepresentation or otherwise, and
whether based on any federal, state or other law or right of action at law
or in equity, and whether foreseen or unforeseen, matured or unmatured,
known or unknown, that you ever had or now have against any and all of the
Released Parties, including, without limitation, any and all Claims arising
out of or relating to your employment with Saucony; provided, that, nothing
in this paragraph (i) shall release or discharge any Claim (w) for salary,
personal, sick or vacation time or other benefits accrued and unpaid
through the date of this Agreement, (x) for stock options granted to you
with the specific approval of Saucony's Board of Directors, (y) arising out
of facts or circumstances occurring after the date of this Agreement, or
(z) relating to the enforcement of this Agreement.
(ii) You understand and agree that you will not make any false,
disparaging or derogatory statements to any person or entity
regarding Saucony or any of its directors, officers,
stockholders, affiliated entities, agents, employees or
representatives or about Saucony's business affairs or financial
condition; provided, that, nothing in this clause (ii) will
preclude you, if requested by Saucony to speak candidly to a
prospective party to a strategic alternative under consideration
by Saucony, from making truthful statements to such prospective
party responsive to questions from such prospective party.
(b) As a condition to your receipt of the first retention payment and the
accelerated vesting of stock options described under the caption
"Change in Control" above, you agree to execute a release in the form
attached as Annex A hereto reaffirming the release that you provided
to Saucony in paragraph (a) above through the effective date of the
Change in Control.
General
All notices under this Agreement must be in writing and delivered, if
to Saucony, to its Chief Executive Officer at its principal place of
business, and if to you, at the most recent address for you set forth in
Saucony's personnel records. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein
and, except for agreements evidencing options to purchase Saucony's capital
stock granted to you with the specific approval of Saucony's Board of
Directors (the "Existing Options"), supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of the subject matter
contained herein; and any prior agreement of the parties hereto in respect
of the subject matter contained herein (other than the Existing Options),
including, without limitation, any prior retention agreement or any prior
agreement providing for bonus payments in connection with a change in
control, is hereby terminated and cancelled. The laws of the Commonwealth
of Massachusetts (other than its conflict of laws provisions) govern this
Agreement. Each of Saucony and you hereby waives any right to trial by jury
in any proceeding arising out of or relating to this Agreement.
If you accept the terms of this Agreement, please sign below and
return a copy to Hal J. Leibowitz, Esq., Wilmer Cutler Pickering Hale and
Dorr LLP, 60 State Street, Boston, MA 02109, by no later than 5:00 p.m.
(Eastern Time) on September 10, 2004. We encourage you to consult with any
advisors you choose.
Very truly yours,
SAUCONY, INC.
By: /s/ John H. Fisher
Name: John H. Fisher
Title: CEO
I accept and agree to the terms set forth in this Agreement:
/s/ Michael Jeppesen Dated: September 9, 2004
Michael Jeppesen
Annex A
Release
The undersigned and Saucony, Inc., a Massachusetts corporation ("Saucony"),
have entered into a retention agreement dated September 9, 2004 (the "Retention
Agreement"). Pursuant to the Retention Agreement, the undersigned is entitled
under certain circumstances to a retention payment and to the acceleration of
stock options in the event of a Change in Control of Saucony (as defined in the
Retention Agreement) on or prior to December 31, 2005. A Change in Control of
Saucony has occurred and the undersigned has otherwise satisfied the
requirements to receive the first retention payment and the acceleration of
stock options described in the Retention Agreement under the caption "Change in
Control." However, as a condition to the undersigned's receipt of such payment
and to the acceleration of stock options, the undersigned is required to deliver
this release (the "Release") to Saucony. The undersigned therefore agrees as
follows:
(i) The undersigned hereby fully, forever, irrevocably and unconditionally
releases and discharges Saucony, its directors, officers,
stockholders, affiliated entities, agents, employees and
representatives (the "Released Parties"), from any and all claims,
causes of action, agreements, promises, liabilities, obligations and
expenses ("Claims"), of every kind and nature, whether arising from
any act, omission, misrepresentation or otherwise, and whether based
on any federal, state or other law or right of action at law or in
equity, and whether foreseen or unforeseen, matured or unmatured,
known or unknown, that the undersigned ever had or now has against any
and all of the Released Parties, including, without limitation, any
and all Claims arising out of or relating to the undersigned's
employment with Saucony; provided, that, nothing in this paragraph (i)
shall release or discharge any Claim (w) for salary, personal, sick or
vacation time or other benefits accrued and unpaid through the date of
this Release, (x) for stock options granted to the undersigned with
the specific approval of Saucony's Board of Directors, (y) arising out
of facts or circumstances occurring after the date of this Release, or
(z) relating to the enforcement of the Retention Agreement.
(ii) The undersigned understands and agrees that he will not make any
false, disparaging or derogatory statements to any person or entity
regarding Saucony or any of its directors, officers, stockholders,
affiliated entities, agents, employees or representatives or about
Saucony's business affairs or financial condition.
The laws of the Commonwealth of Massachusetts (other than its conflict of
laws provisions) govern this Release. The undersigned hereby waives any right to
trial by jury in any proceeding arising out of or relating to this Release.
The undersigned accepts and agrees to the terms set forth in this Release:
__________________________ Dated: _________ ____, 200_
Michael Jeppesen