EX-10.5 8 file006.htm AMENDMENT TO EMPLOYMENT AGREEMENT



                        AMENDMENT TO EMPLOYMENT AGREEMENT

     This Agreement, made and entered into as of August 11, 2005 by and between
The Warnaco Group, Inc., a Delaware corporation (together with its subsidiaries,
divisions and affiliates, the "Company"), and Frank Tworecke ("you"), amends the
letter agreement relating to your employment with the Company dated as of April
21, 2004 (the "Employment Agreement"). Except as otherwise stated herein, all
definitions used in this Amendment shall have the meaning ascribed to such term
in the Employment Agreement.

     In consideration of the premises contained herein and for other good and
valuable consideration, the receipt of which is mutually acknowledged, the
Company and you agree as follows:

     1. Paragraph 3 of the Employment Agreement is amended by adding a new
clause (d) and (e) as follows:

          "d.  During the Term beginning with fiscal year 2005, provided you are
               employed by the Company, you shall be entitled to an annual award
               with an aggregate grant date value equal to 10% of the sum of
               Base Salary plus Annual Bonus as defined in this paragraph 3(d)
               if you will be less than age 60 by the end of the applicable
               fiscal year and 13% of such amount if you will be age 60 or older
               by the end of the applicable fiscal year ("Supplemental Award"),
               with the first such award being made no later than 60 days after
               the Effective Date. For this purpose, Base Salary shall be the
               Base Salary paid to you for the fiscal year prior to the award
               year and Annual Bonus shall be the annual bonus awarded to you by
               the Board for such fiscal year. The Supplemental Award shall not
               be awarded to you until after the determination by the Board of
               your annual bonus for the prior fiscal year (but in no event
               later than 60 days thereafter for any award made after fiscal
               year 2005) and 50% of the value of the Supplemental Award shall
               be awarded in the form of restricted shares pursuant to the
               applicable Stock Incentive Plan ("Career Shares") and 50% shall
               be awarded in the form of a credit to a bookkeeping account
               maintained by the Company for your account (the "Notional
               Account"). Any Career Shares awarded hereunder shall be governed
               by the applicable Stock Incentive Plan and, if applicable, any
               award agreement. For purposes of this paragraph 3(d), each Career
               Share shall be valued at the closing price of a share of the
               Company's common stock ("Share") on the date that the
               Supplemental Award is made. For the Notional Account, the Company
               shall select the investment alternatives available to you under
               the Company's 401(k) plan. The balance in the Notional Account
               shall periodically be credited (or debited) with the deemed
               positive (or negative) return based on returns of the permissible
               investment alternative or alternatives under the Company's 401(k)
               plan as selected in advance by you (and in accordance with the
               applicable rules of such plan or investment alternative) to apply
               to such Notional Account, with such


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               deemed returns calculated in the same manner and at the same
               times as the return on such investment alternative(s). The
               Company's obligation to pay the amount credited to the Notional
               Account, including any return thereon provided for in this
               paragraph 3(d), shall be an unfunded obligation to be satisfied
               from the general funds of the Company. Except as otherwise
               provided in paragraphs 6 or 8 below or the applicable Stock
               Incentive Plan and provided that you are employed by the Company
               on such vesting date, any Supplemental Award granted in the form
               of Career Shares will vest as follows: 50% of the Career Shares
               will vest on the earlier of your 62nd birthday or upon your
               obtaining 15 years of "Vesting Service" and 100% of the Career
               Shares will vest on the earliest of (i) your 65th birthday, (ii)
               upon your obtaining 20 years of "Vesting Service" or (iii) 10th
               anniversary of the date of grant. Except as otherwise provided in
               paragraphs 6 or 8 below, and provided that you are employed by
               the Company on such vesting date, any Supplemental Award granted
               as a credit to the Notional Account (as adjusted for any returns
               thereon) ("Adjusted Notional Account")) shall vest as follows:
               50% on the earlier of your 62nd birthday or upon your obtaining 5
               years of "Vesting Service" and 100% on the earlier of the your
               65th birthday and upon your obtaining 10 years of "Vesting
               Service". For purposes of this paragraph 3(d), "Vesting Service"
               shall mean the period of time that you are employed by the
               Company as an executive officer. Subject to paragraph 27 hereof,
               upon vesting the Career Shares will be delivered to you in the
               form of Shares. The vested balance in the Adjusted Notional
               Account shall not be distributed to you until you cease to be an
               employee of the Company and, at such time, shall only be
               distributed at the earliest time that satisfies the requirements
               of this paragraph 3(d). Except as otherwise provided in
               paragraphs 6 or 8 hereof, if your employment is terminated for
               any reason, any unvested Supplemental Awards (whether in the form
               of Career Shares or the Adjusted Notional Account) shall be
               forfeited and any vested balance in the Adjusted Notional
               Account, subject to paragraph 27 hereof, shall be paid to you in
               a cash lump-sum payment immediately following your "separation
               from service," as defined by Section 409A(a)(2)(A)(i) of the
               Internal Revenue Code of 1986, as amended (the "Code"), with the
               Company; provided, however, that, except in the case of your
               death, if at the time of such separation from service you are a
               "specified employee," as defined in Section 409A(a)(2)(B)(i) of
               the Code, such distribution shall not be made until at least six
               months after the date of such separation from service; provided,
               further, that if your employment is terminated due to Disability
               and such Disability satisfies the requirements of Section
               409A(a)(2)(C) of the Code, then such distribution may be made
               upon termination without regard as to whether you were a
               "specified employee" at such time. The provisions of this
               paragraph 3(d) shall survive expiration or termination of the
               Term.

          e.   If you remain actively employed with the Company until the fifth
               anniversary of the date you commenced employment with the Company
               then following termination of your employment with the Company
               (other than for Cause), the Company will pay you an amount
               annually in equal monthly


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               installments equal to $75,000 minus the "Value of the
               Supplemental Awards," with the first installment being paid
               within 30 days of your date of termination until the earlier to
               occur of (i) your death or (ii) the fifteenth anniversary of your
               date of termination; provided that if at the time you terminate
               employment you are a "specified employee," as defined in Section
               409A(a)(2)(B)(i) of the Code, the first such payment shall not be
               made until at least six months after your date of termination
               and, at such time, you shall receive a lump-sum amount equal to
               the amount of the installments that would otherwise have been
               made during this six-month period. Notwithstanding the foregoing,
               the amount payable hereunder shall be pro-rated for the year of
               termination and the year in which you die based on the number of
               days that elapsed in such year after your date of termination or
               prior to your date of death, as the case may be. The "Value of
               the Supplemental Awards" shall equal (x) the number of vested
               Career Shares as of your date of termination multiplied by the
               applicable "Share Price" plus (y) the Adjusted Notional Account
               balance as of your date of termination, (z) divided by 9.75. For
               purposes of this paragraph 3(e), "Share Price" shall mean (a) for
               any vested Career Shares for which the Share was sold prior to
               the date you terminate employment, the sale price for such Share,
               with such price increased by 7/12ths of 1% per month from the
               date of sale to your date of termination and (b) for any vested
               Career Share for which the Share has not been sold prior to your
               date of termination, the closing price of the Share on the date
               you terminate employment. The provisions of this paragraph 3(e)
               shall survive expiration or termination of the Term."

     2. Paragraph 6 of the Employment Agreement is amended by adding a new
clause (e) as follows:

          "e.  Immediate vesting as of the Date of Termination of 50% of any
               previously granted Supplemental Award that remains unvested as of
               the Date of Termination, payable in accordance with paragraph
               3(d) above."

     3. Paragraph 8 of the Employment Agreement is amended as follows:

          (a)  Deleting paragraph 8(b) in its entirety and replacing it with the
               following:

               "b.  Payment of an amount equal to 2 times the sum of (a) Base
                    Salary plus (b) Target Bonus, payable in a lump sum as soon
                    as practicable following the Date of Termination (but in no
                    event later than 60 days following such date)."

          (b)  Deleting paragraph 8(c) in its entirety and replacing it with the
               following:

               "c.  A pro-rata Target Bonus for the year of termination,
                    determined by multiplying the Target Bonus by a fraction,
                    the numerator of which is the number of days that you were
                    employed by the Company during the year in which the Date of
                    Termination occurs and the


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                    denominator of which is 365, payable in a lump sum as soon
                    as practicable following the Date of Termination (but in no
                    event later than 60 days following such date)."

          (c)  Amending paragraph 8(d) by adding the following at the end of
               such paragraph:

               "and immediate vesting as of the Date of Termination of all other
               outstanding equity awards (other than Career Shares), with any
               stock options granted on or after the Amendment Date remaining
               exercisable for 24 months following the Date of Termination or
               the remainder of the option term, if shorter."

          (d)  Renumbering paragraph 8(e), 8(f) and 8(g) to be paragraphs 8(f),
               8(g) and 8(h), respectively, and amending the new paragraph 8(f)
               by replacing "18" with "24".

          (e)  Adding a new paragraph 8(e) as follows:

               "e.  Immediate vesting as of the Date of Termination of any
                    previously granted Supplemental Award, payable in accordance
                    with paragraph 3(d) above."

     4. Paragraph 23 of the Employment Agreement is amended by adding the
following provision at the end of such paragraph:

          "Notwithstanding the foregoing, in 2005, the Company shall have the
          right to modify any provision of this Agreement (or, if requested by
          you, shall make such modification), including, without limitation,
          paragraph 3 and paragraphs 5 through 9 hereof, if, and only to the
          extent that, such modification shall be required, in the reasonable
          opinion of the Company's and/or your counsel, to comply with Section
          409A of the Code or any regulations or similar guidance issued by the
          Treasury or the Internal Revenue Service with respect to Code Section
          409A."

     5. A new paragraph 28 is added to the Employment Agreement as follows:

          "28. The Company hereby agrees during, and after termination of, your
               employment to indemnify you and hold you harmless, both during
               the Term and thereafter, to the fullest extent permitted by law
               and under the certificate of incorporation and by-laws of the
               Company against and in respect of any and all actions, suits,
               proceedings, claims, demands, judgments, costs, expenses
               (including reasonable attorneys' fees), losses, amounts paid in
               settlement to the extent approved by the Company, and damages
               resulting from your good faith performance of your duties as an
               officer or director of the Company or any affiliate of the
               Company. The


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               Company shall reimburse you for expenses incurred by you in
               connection with any proceeding hereunder upon your written
               request for such reimbursement and your submission of the
               appropriate documentation associated with these expenses. Such
               request shall include an undertaking by you to repay the amount
               of such advance or reimbursement if it shall ultimately be
               determined that you are not entitled to be indemnified hereunder
               against such costs and expenses. The Company shall use
               commercially reasonable efforts to obtain and maintain directors'
               and officers' liability insurance covering you to the same extent
               as the Company covers its other officers and directors."

     6. A new paragraph 29 is added to the Employment Agreement as follows:

          "29.

          a.   If any amount, entitlement, or benefit paid or payable to you or
               provided for your benefit under this agreement and under any
               other agreement, plan or program of the Company (such payments,
               entitlements and benefits referred to as a "Payment") is subject
               to the excise tax imposed under Section 4999 of the Code or any
               similar federal or state law (an "Excise Tax"), then
               notwithstanding anything contained in this agreement to the
               contrary, to the extent that any or all Payments would be subject
               to the imposition of an Excise Tax, the Payments shall be reduced
               (but not below zero) if and to the extent that such reduction
               would result in your retaining a larger amount, on an after-tax
               basis (taking into account federal, state and local income taxes
               and the imposition of the Excise Tax), than if you received all
               of the Payments (such reduced amount is hereinafter referred to
               as the "Limited Payment Amount"). Unless you give prior written
               notice specifying a different order to the Company to effectuate
               the limitations described in the preceding sentence, the Company
               shall reduce or eliminate the Payments, by first reducing or
               eliminating those payments or benefits which are not payable in
               cash and then by reducing or eliminating cash payments, in each
               case in reverse order beginning with payments or benefits which
               are to be paid the farthest in time from the Determination (as
               defined below). Any notice given by you pursuant to the preceding
               sentence shall take precedence over the provisions of any other
               plan, arrangement or agreement, including, but not limited to,
               the other provisions of this agreement, governing your rights and
               entitlements to any compensation, entitlement or benefit.

          b.   All calculations under this paragraph 29 shall be made by a
               nationally recognized accounting firm designated by the Company
               and reasonably acceptable to you (other than the accounting firm
               that is regularly engaged by any party who has effectuated a
               Change in Control) (the "Accounting Firm"). The Company shall pay
               all fees and expenses of such Accounting


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               Firm. The Accounting Firm shall provide its calculations,
               together with detailed supporting documentation, both to the
               Company and you within 45 days after the Change in Control or the
               Date of Termination, whichever is later (or such earlier time as
               is requested by the Company) and, with respect to the Limited
               Payment Amount, shall deliver its opinion to you that you are not
               required to report any Excise Tax on your federal income tax
               return with respect to the Limited Payment Amount (collectively,
               the "Determination"). Within 5 days of your receipt of the
               Determination, you shall have the right to dispute the
               Determination (the "Dispute"). The existence of the Dispute shall
               not in any way affect your right to receive the Payments in
               accordance with the Determination. If there is no Dispute, the
               Determination by the Accounting Firm shall be final binding and
               conclusive upon the Company and you (except as provided in clause
               (c) below).

          c.   If, after the Payments have been made to you, it is established
               that the Payments made to you, or provided for your benefit,
               exceed the limitations provided in clause (a) above (an "Excess
               Payment") or are less than such limitations (an "Underpayment"),
               as the case may be, then the provisions of this clause (c) shall
               apply. If it is established pursuant to a final determination of
               a court or an Internal Revenue Service (the "IRS") proceeding
               which has been finally and conclusively resolved, that an Excess
               Payment has been made, you shall repay the Excess Payment to the
               Company on demand. In the event that it is determined by (i) the
               Accounting Firm, the Company (which shall include the position
               taken by the Company, or together with its consolidated group, on
               its federal income tax return) or the IRS, (ii) pursuant to a
               determination by a court, or (iii) upon the resolution to your
               satisfaction of the Dispute, that an Underpayment has occurred,
               the Company shall pay an amount equal to the Underpayment to you
               within 10 days of such determination or resolution together with
               interest on such amount at the applicable federal short-term
               rate, as defined under Section 1274(d) of the Code and as in
               effect on the first date that such amount should have been paid
               to you under this agreement, from such date until the date that
               such Underpayment is made to you."

     7. Exhibit A to the Employment Agreement is amended as follows:

          (a)  By adding the following new definition:

               "AMENDMENT DATE" shall mean August 11, 2005.

          (b)  By deleting the definition of "CHANGE IN CONTROL" in its entirety
               and replacing it with the following definition:


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               "CHANGE IN CONTROL" shall mean any of the following:

               (i) any "person" (as such term is used in Sections 3(a)(9) and
               13(d) of the Securities Exchange Act of 1934) or group of persons
               acting jointly or in concert, but excluding a person who owns
               more than 5% of the outstanding shares of the Company as of the
               date of the Commencement Date, becomes a "beneficial owner" (as
               such term is used in Rule 13d-3 promulgated under that Act), of
               50% or more of the Voting Stock of the Company;

               (ii) all or substantially all of the assets of the Company are
               disposed of pursuant to a merger, consolidation or other
               transaction (unless the shareholders of the Company immediately
               prior to such merger, consolidation or other transaction
               beneficially own, directly or indirectly, in substantially the
               same proportion as they owned the Voting Stock of the Company,
               all of the Voting Stock or other ownership interests of the
               entity or entities, if any, that succeed to the business of the
               Company); or

               (iii) approval by the shareholders of the Company of a complete
               liquidation or dissolution of all or substantially all of the
               assets of the Company.

               For purposes of this Change in Control definition, "Voting Stock"
               shall mean the capital stock of any class or classes having
               general voting power, in the absence of specified contingencies,
               to elect the directors of the Company."

     This Amendment contains the entire understanding and agreement between the
parties concerning the subject matter hereof and, as of the Amendment Date,
shall supersede all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the parties with respect to
any non-qualified retirement or pension benefits or any benefits upon or
following a Change in Control, including, without limitation, the letter
agreement between the Company and you dated as of April 16, 2004 relating to a
certain retirement benefit. Except as otherwise provided herein, the Employment
Agreement remains in full force and effect.


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     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.

                                        THE WARNACO GROUP, INC.


                                        By:    /s/ Joseph R. Gromek
                                            ------------------------------------
                                        Name:  Joseph R. Gromek
                                        Title: President and Chief Executive
                                               Officer

                                        THE EXECUTIVE

                                        /s/ Frank Tworecke
                                        ----------------------------------------
                                        Frank Tworecke


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