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EXHIBIT 10.1
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EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November 8, 2007,
between
THE ESTEE LAUDER COMPANIES INC., a Delaware corporation (the
"Company"), and
FABRIZIO FREDA, a resident of Rome, Italy (the "Executive" or
"you"),
W I T N E S S E T H:
WHEREAS, the Company and its subsidiaries are principally
engaged in
the business of manufacturing, marketing and selling skin care,
makeup,
fragrance and hair care products and related services (the
"Business"); and
WHEREAS, the Company desires to retain the services of the
Executive
from March 3, 2008 through June 30, 2011 and the Executive
desires to provide
services in such capacities to the Company, upon the terms and
subject to the
conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
the
Company (the "Compensation Committee") and the Stock Plan
Subcommittee of the
Compensation Committee have approved the terms of this
Agreement; and
NOW, THEREFORE, in consideration of the foregoing and of the
mutual
covenants and obligations hereinafter set forth, the parties
hereto, intending
to be legally bound, hereby agree as follows:
1. Employment Term.
The Company hereby agrees to employ the Executive, and the
Executive
hereby agrees to enter into employment from March 3, 2008
through June 30, 2011,
unless terminated sooner pursuant to Section 6 hereof (the "Term
of
Employment"). The four-month period commencing on March 3, 2008
and ending on
June 30, 2008 shall be the "First Contract Year" hereunder, and
subsequent
twelve-month periods shall be subsequent Contract Years.
2. Duties and Extent of Services.
(a) During the Term of Employment, the Executive shall serve
as
President and Chief Operating Officer reporting to the Chief
Executive Officer.
The intention of the parties hereto is that the Executive will
be the successor
to the Chief Executive Officer of the Company and, subject to
the Executive's
performance of his duties for the Company and its subsidiaries
and affiliates
being satisfactory to the Board of Directors, such decision to
succeed the Chief
Executive Officer shall be made no later than July 1, 2009 with
effect no later
than July 1, 2010. In such capacities, the Executive shall
render such
executive, managerial, administrative and other services as
customarily are
associated with and incident to such positions, and as the
Company may, from
time to time, reasonably require of him consistent with such
positions.
(b) The Executive shall also hold such other positions and
executive offices of the Company and/or of any of the Company's
subsidiaries or
affiliates as may from time to time be agreed by the Executive
or assigned by
the Chief Executive Officer or the Board of Directors,
consistent with his
position as President and Chief Operating Officer of the
Company. The Executive
shall not be entitled to any compensation other than the
compensation provided
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for herein for serving during the Term of Employment in any
other office or
position of the Company or any of its subsidiaries or
affiliates, unless the
Board of Directors of the Company or the appropriate committee
thereof shall
specifically approve such additional compensation.
(c) The Executive shall be a full-time employee of the Company
and
shall exclusively devote all his business time and efforts
faithfully and
competently to the Company and shall diligently perform to the
best of his
ability all of the duties required of him as President and Chief
Operating
Officer and in the other positions or offices of the Company or
its subsidiaries
or affiliates assigned to him hereunder. Notwithstanding the
foregoing
provisions of this section, the Executive may serve as a
non-management director
of such business corporations (or in a like capacity in other
for-profit or
not-for-profit organizations) as the Chief Executive Officer (at
the time
Executive is not the Chief Executive Officer) or the Board of
Directors of the
Company may approve, such approval not to be unreasonably
withheld.
(d) The Executive shall comply with the Company's stock
ownership
guidelines applicable to the Executive as they may be
implemented and/or amended
by the Board of Directors or the Compensation Committee of the
Board of
Directors.
3. Base Salary and Incentive Bonus Compensation;
Supplemental
Deferral.
(a) Base Salary. As compensation for all services to be
rendered
pursuant to this Agreement and as payment for the rights and
interests granted
by Executive hereunder, the Company shall pay or cause any of
its subsidiaries
to pay the Executive a base salary (the "Base Salary") during
the Term of
Employment subject to the provisions of Section 3(d) below at
the annualized
rate of not less than $1,300,000.00. The Base Salary shall be
reviewed for
adjustment by the Compensation Committee of the Board of
Directors of the
Company in the event that the Executive succeeds the Chief
Executive Officer in
accordance with Section 2(a) hereof, in conformity with
standards generally
applicable to executive officers of the Company. Subject to
Section 6(l) of this
Agreement, all amounts of Base Salary provided for hereunder
shall be payable in
accordance with the regular payroll policies of the Company in
effect from time
to time.
(b) Sign On Bonus. The Company shall pay to the Executive a
"sign
on" bonus of $1,000,000.00 within thirty (30) days of the first
day of
employment of the Executive at the Company under this Agreement;
provided the
Executive continues to be employed by the Company hereunder on
the payment date.
(c) Incentive Bonus Compensation. The Compensation Committee
has
established for the Executive the target bonus payout for the
aggregate
opportunities that may be awarded in respect of each fiscal year
of the Company
under the Company's Executive Annual Incentive Plan or any
subsequent Bonus Plan
for executives that is approved by the stockholders of the
Company (the "Bonus
Plan") in respect of each Contract Year after the First Contract
Year under this
Agreement. The target bonus payout for the aggregate
opportunities in respect of
each twelve (12) month Contract Year shall be no less than
$2,500,000.00. In
respect of the First Contract Year, the target bonus payout for
the aggregate
opportunities shall be an amount computed by multiplying
$2,500,000.00 by a
fraction, the numerator of which is the number of months
(including fractions
thereof) from the Employee's first day of employment under this
Agreement
through June 30, 2008 and the denominator of which is twelve
(12) months, such
amount to be guaranteed. Such target bonus payout for the
aggregate
opportunities shall be reviewed for adjustment by the
Compensation Committee of
the Board of Directors of the Company in the event that the
Executive succeeds
the Chief Executive Officer in accordance with Section 2(a)
hereof, in
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conformity with standards generally applicable to executive
officers of the
Company. Opportunities for each twelve (12) month Contract Year
shall be subject
to the terms and conditions of the Bonus Plan, which are
incorporated herein by
reference; provided, however, that except with respect to
bonuses deferred in
accordance with Section 3(d) hereof, and as otherwise indicated
under Section 6,
the bonus payout with respect to any fiscal year shall be paid
to Executive no
later than the 15th day of the third month following the end of
such fiscal
year.
(d) Deferral.
(i) Deferral Elections--In General. The Executive may elect
to defer payment of all or any part of any incentive bonus
compensation payable
under Sections 3(b) and 3(c) by making an election, in a manner
prescribed by
the Company, on or before December 31 of the calendar year
before the Contract
Year begins (or such earlier date as may be necessary to comply
with the
applicable tax laws and regulations).
(ii) Deferral Elections--Performance-Based Compensation. For
any incentive bonus compensation that qualifies as
performance-based
compensation under Treas. Reg. Section 1.409A-1(e) and is based
upon a
performance period of at least twelve (12) months, the Executive
may make a
deferral election at any time before the date that is six (6)
months before the
applicable performance period ends, but only if (i) the
incentive bonus
compensation is not readily ascertainable when the election is
made and (ii) the
service provider has performed services continuously from the
later of the
beginning of the performance period or the date the performance
criteria are
established.
(iii) Amounts Subject to Section 162(m). Except for
compensation payable in respect of the First Contract Year
(including Base
Salary provided for in Section 3(a), the "sign on" bonus
provided for in Section
3(b) and the incentive bonus compensation in respect of the
First Contract Year
provided in Section 3(c)), if any amount of Base Salary, any
amount payable
under the Bonus Plan, or any other amount payable to the
Executive is not
currently deductible under Section 162(m) of the Internal
Revenue Code of 1986,
as amended (the "Code"), or like or successor provisions (a
"Non-Deductible
Amount"), the Company will defer payment of the Non-Deductible
Amount until
section 162(m) no longer applies to the Executive.
(iv) Payment of Amounts Deferred and Vested. Subject to
Section 6(l), amounts credited to the Executive's Deferred
Compensation Account
will be paid to the Executive (or the Executive's designated
beneficiary if the
Executive dies before payment), subject to applicable
withholding taxes on, or
as soon as practicable after, the date the Executive separates
from service with
the Company (as defined in Treas. Reg. section 1.409A-1(h)). The
Non-Deductible
Amount will be paid at the earliest date at which the Company
reasonably expects
that the deduction will not be limited or eliminated by Code
section 162(m). The
Company, in its sole discretion, may provide an investment
facility for all or a
portion of such deferred amounts, but is not required to do
so.
(v) Any amounts so deferred will be credited to a
bookkeeping
account in the name of the Executive as of the date scheduled
for payment (the
"Deferred Compensation Account"). The Deferred Compensation
Account will be
credited with interest as of each June 30 during the term of
deferral,
compounded annually, at an annual rate equal to the annual rate
of interest
announced by Citibank N.A. in New York, New York as its base
rate in effect on
such June 30, but limited to a maximum annual rate of 9%.
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(e) Supplemental Deferral. (i) The Company shall credit to a
bookkeeping account in the name of the Executive an annual
supplemental deferral
amount during the Term of Employment computed by taking the
difference between
$485,000.00 (the gross amount of the pension contributions made
on behalf of the
Executive by his former employer, using an effective tax rate of
approximately
forty-two (42) percent) and the actual vested annual accruals
and contributions
made to the Company's qualified and non-qualified pension and
qualified
retirement savings plans on behalf of the Executive. Such
amounts shall be
credited with interest as of each June 30 for the duration of
this supplemental
pension bookkeeping account, compounded annually, at a rate per
annum equal to
the annual rate of interest announced by Citibank N.A. in New
York, New York as
its base rate in effect on such June 30, but in no event shall
such rate exceed
9%.
(ii) Subject to Section 6(l), amounts credited to the
Executive's supplemental deferral account will be paid to the
Executive (or the
Executive's designated beneficiary if the Executive dies before
payment),
subject to applicable withholding taxes on, or as soon as
practicable after, the
date the Executive separates from service with the Company (as
defined in Treas.
Reg. section 1.409A-1(h)). The supplemental deferral will be
paid at the
earliest date at which the Company reasonably expects that the
deduction will
not be limited or eliminated by Code section 162(m). The
Company, in its sole
discretion, may provide an investment facility for all or a
portion of such
deferred amounts, but is not required to do so.
4. Equity-Based Compensation.
(a) General; One-Time Award. The Company shall recommend to
the
Stock Plan Subcommittee of the Compensation Committee that the
Executive be
awarded under the terms and conditions of the Amended and
Restated Fiscal 2002
Share Incentive Plan (the "Share Incentive Plan"), which are
incorporated herein
by reference, or successor plan and subject to the provisions of
Section 6(k)
below, equity-based compensation awards in accordance with the
policies and
procedures of the Company as in effect from time to time for its
Executive
Officers. The terms of such equity-based compensation awards
shall be set forth
in separate grant letters approved by the Stock Plan
Subcommittee of the
Compensation Committee. The recommended one-time equity-based
compensation
awards shall be of an equivalent value to a grant of stock
options with respect
to 100,000 shares of the Company's Class A Common Stock and
determined in
accordance with procedures generally utilized by the Company for
its financial
reporting at the time of grant.
(b) Annual Awards. In respect of each Contract Year after
the
First Contract Year, the Company shall recommend to the Stock
Plan Subcommittee
of the Compensation Committee that the Executive be awarded
under the terms and
conditions of the Amended and Restated Fiscal 2002 Share
Incentive Plan (the
"Share Incentive Plan"), which are incorporated herein by
reference, or
successor plan and subject to the provisions of Section 6(k)
below, equity-based
compensation awards in accordance with the policies and
procedures of the
Company as in effect from time to time for its Executive
Officers. The terms of
such equity-based compensation awards shall be set forth in
separate grant
letters approved by the Stock Plan Subcommittee of the
Compensation Committee.
The recommended annual equity-based compensation awards shall be
of an
equivalent value to a grant of stock options with respect to
250,000 shares of
the Company's Class A Common Stock and determined in accordance
with procedures
generally utilized by the Company for its financial reporting at
the time of
grant.
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(c) Certain Conditions. Executive acknowledges and agrees that
any
grant of equity-based compensation otherwise provided for in
this Section 4
shall be effective as provided herein only to the extent
permitted by the Share
Incentive Plan, and this Agreement shall not obligate the
Company to adopt any
successor plan providing for the grant of equity-based
compensation. If
authority over the Company's equity compensation programs is
changed from the
Stock Plan Subcommittee to the Compensation Committee (or other
committee), then
after such change, references herein to the Stock Plan
Subcommittee shall be to
the appropriate committee.
5. Benefits.
(a) Standard Benefits. During the Term of Employment, the
Executive shall be entitled to participate in all pension and
retirement
savings, fringe benefit and welfare plans, including life
insurance, medical,
health and accident, disability, and vacation plans and programs
maintained by
the Company from time to time for senior executives at a level
commensurate with
his position. The Executive acknowledges that participation in
such programs may
result in the receipt by him of additional taxable income.
(b) Perquisite Reimbursement; Financial Counseling. During
the
Term of Employment, the Company shall reimburse the Executive
for the actual
expenses incurred by him in connection with his professional
standing, in
accordance with the guidelines set out in the Company's Senior
Executive
Compensation Program Perquisite Plan and upon presentation of
proper expense
statements or vouchers or such other supporting information as
the Company may
reasonably require of the Executive. Such reimbursement shall
generally occur
within seventy-five (75) days after the end of the calendar year
of presentment,
provided that such presentment occurs within ninety (90) days
after the date the
related expense were incurred. Notwithstanding the above, to the
extent that the
expenses were incurred in one calendar year and presentment
occurs in the
following calendar year, such reimbursement shall occur by the
end of the
calendar year in which the presentment occurs. In no event shall
the gross
amount of such reimbursements be greater than $15,000.00 in
respect of any
calendar year during the Term of Employment, nor shall amounts
that are not
reimbursed in one calendar year up to the $15,000.00 per year
limitation be able
to be used in another calendar year or otherwise be made
available to the
Executive. Additionally, the Company will pay directly to the
service provider
following presentment of invoice(s) reasonably acceptable to the
Company up to
$5,000.00 per year for reasonable financial counseling services
for the
Executive, and in no event shall amounts up to the $5,000.00 per
year limitation
that are not paid in one calendar year be able to be used in
another calendar
year or otherwise be made available to the Executive. The
Executive acknowledges
that participation in such programs will result in the receipt
by him of
additional taxable income.
(c) Executive Auto. The Executive will participate in the
Executive Automobile Program of the Company, and may elect to be
provided an
automobile having an acquisition value of up to $50,000.00.
Alternatively, the
Executive may receive an automobile allowance in the gross
monthly amount of
$1,100.00. The Executive acknowledges that participation in this
program will
result in the receipt by him of additional taxable income.
(d) Expenses. The Company agrees to reimburse the Executive
for
all reasonable and necessary travel (inclusive of first class
air travel),
business entertainment and other business out-of-pocket expenses
incurred or
expended by him in connection with the performance of his duties
hereunder upon
presentation of proper expense statements or vouchers or such
other supporting
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information as the Company may reasonably require of the
Executive. The timing
of payment of such reimbursements and presentation by the
Executive of expenses
incurred shall be in accordance with the rules described in
Section 5(b).
(e) Spousal Travel. The Executive may upon prior approval of
the
Chief Executive Officer (or the Chairman of the Board if the
Executive is the
Chief Executive Officer) or his or her designee, arrange for his
spouse or
domestic partner to accompany him on up to two (2) business
related travel
itineraries per fiscal year, on a reasonable basis, at Company
expense. Any
reimbursement for such travel shall require presentation of
proper expense
statements or vouchers or such other supporting information as
the Company may
reasonably require of the Executive, in accordance with the
timeframe described
in Section 5(b). The Executive acknowledges that participation
in this program
will result in the receipt by him of additional taxable
income.
(f) Executive Term Life Insurance. During the Term of
Employment,
the Company shall pay premiums on a term life insurance policy
with a face
amount of $5,000,000.00. Such obligation to pay premiums is
subject to standard
underwriting conditions. The Executive acknowledges that this
coverage will
result in the receipt by him of additional taxable income.
(g) Relocation Allowances and Expenses. The Company shall pay
to
the Executive relocation allowances and expenses related to the
Executive's
relocation from Rome, Italy to the New York area in accordance
with the
Company's international relocation policy in effect from time to
time.
6. Termination.
(a) Permanent Disability. In the event of the "permanent
disability" (as hereinafter defined) of the Executive during the
Term of
Employment, the Company shall have the right, upon written
notice to the
Executive, to terminate the Executive's employment hereunder,
effective upon the
giving of such notice (or such later date as shall be specified
in such notice).
In the event of such termination, the Company shall have no
further obligations
hereunder, except that the Executive shall be entitled to
receive (i) any
accrued but unpaid salary and other amounts to which the
Executive otherwise is
entitled hereunder prior to the date of his termination of
employment, such
salary to be paid in accordance with Section 3(a) and such other
amounts to be
paid in accordance with applicable payment provisions herein;
(ii) bonus
compensation earned but not paid under Section 3(c) hereof that
relates to any
Contract Year ended prior to the date of his termination of
employment, to be
paid in accordance with Section 3(c) hereof; (iii) a pro-rata
portion of the
annual bonus payout that the Executive would have been entitled
to receive had
he remained in employment through the end of the Contract Year
during which
termination due to permanent disability occurred, based on the
portion of the
Contract Year that has elapsed prior to such termination, and
paid in accordance
with Section 3(c) hereof; (iv) reimbursement for financial
counseling services
specified under Section 5(b) hereof in the amount of $5,000.00
for a period of
one (1) year from the date of termination, in accordance with
Section 5(b)
hereof; and (v) his Base Salary under Section 3(a) hereof for a
period of one
(1) year from the date of termination as a result of permanent
disability (the
"Disability Continuation Period"), paid in accordance with
Section 6(l)(i)
hereof; provided, however, that the Company shall only be
required to pay that
amount of the Executive's Base Salary which shall not be covered
by short-term
disability payments or benefits or long-term disability payments
or benefits, if
any, to the Executive under any Company plan or arrangement. In
addition, upon
termination for permanent disability, the Executive shall
continue to
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participate, to the extent permitted by applicable law and
regulations and the
applicable benefit plan, program or arrangement, in the
supplemental deferral
arrangement discussed in Section 3(e) hereof, and in any and all
healthcare,
life insurance and accidental death and dismemberment insurance
benefit plans,
programs or arrangements of the Company during the Disability
Continuation
Period (disregarding any required delay in payments under
Section 6(l)).
Thereafter, the Executive's rights to participate in such
programs and plans, or
to receive similar coverage, if any, shall be as determined
under such programs.
Because continued participation in any qualified pension and
qualified
retirement savings plans of the Company is not permitted during
the Disability
Continuation Period, the Company shall provide to the Executive,
subject to
Section 6(l), cash payments, to be paid in accordance with
Section 6(l)(i),
equal to the sum of (x) the maximum qualified defined
contribution retirement
savings plan match for pre-tax and after-tax contributions
allowable by the plan
and by applicable laws and regulations for each year during the
Disability
Continuation Period (or other period as expressly provided
herein), and (y) the
excess of the benefit that would have been received by the
Executive had he been
credited with additional years of age and service equal to the
Disability
Continuation Period (or other period as expressly provided
herein) over the
actual benefit to which the Executive is entitled, in each case,
under any and
all qualified and non-qualified defined benefit pension plans
and qualified
defined contribution retirement savings plans in which the
Executive
participates as of the date of termination of employment,
calculated as of and
based upon the Executive's date of termination (such sum, the
"Pension
Replacement Payment"). Notwithstanding the above, any amounts
payable under this
Section 6(a) that are separation pay as described under Treas.
Reg.
ss.1.409A-1(b)(9)(iii)(A) shall be paid no later than December
31 of the second
calendar year following the year in which the Executive's
termination for
permanent disability occurs; any amounts payable under this
Section 6(a) that
are not otherwise exempt from Code section 409A are subject to,
and payable in
accordance with, Section 6(l) of this Agreement. Except as
otherwise provided in
this Section 6(a), the Company will have no further obligations
under Sections
3, 4 and 5 hereof or otherwise. For purposes of this Section
6(a), "permanent
disability" means any disability as defined under the Company's
applicable
disability insurance policy or, if no such policy is available,
any physical or
mental disability or incapacity that renders the Executive
incapable of
performing the services required of him in accordance with his
obligations under
Section 2 hereof for a period of six (6) consecutive months or
for shorter
periods aggregating six (6) months during any twelve-month
period.
(b) Death. In the event of the death of the Executive during
the
Term of Employment, Executive's employment and this Agreement
shall
automatically terminate. In the event of such termination the
Company shall have
no further obligations hereunder, except to pay the Executive's
beneficiary or
legal representative (i) any accrued but unpaid salary and other
amounts to
which the Executive otherwise is entitled hereunder prior to the
date of his
death, in accordance with Section 3(a) and other applicable
payment provisions
herein; (ii) bonus compensation earned but not paid under
Section 3(c) hereof
that relates to any Contract Year ended prior to the date of his
death, in
accordance with Section 3(c) hereof; (iii) a pro-rata portion of
the annual
bonus payout the Executive would have been entitled to receive
had he remained
in the employ of the Company through the end of the Contract
Year during which
termination due to his death occurred, based on the portion of
the Contract Year
that has elapsed prior to such termination, and paid in
accordance with Section
3(c) hereof; (iv) reimbursement for financial counseling
services specified
under Section 5(b) hereof in the amount of $5,000.00 per year
for a period of
one (1) year from the date of termination, in accordance with
Section 5(b)
hereof; and (v) for a period of one (1) year from the date of
his death, the
Executive's Base Salary as established under Section 3(a) hereof
as of the date
of his death, paid in accordance with Section 3(a) hereof;
provided, however,
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that, except as otherwise provided in this Section 6(b), the
Company will have
no further obligations under Sections 3, 4 and 5 hereof or
otherwise.
(c) Termination Without Cause. The Company shall have the
right,
upon ninety (90) days' prior written notice given to the
Executive, to terminate
the Executive's employment for any reason whatsoever (excluding
for Cause (as
defined below)). In the event of such termination, the Company
shall have no
further obligations hereunder, except that the Executive shall
be entitled to
(i) receive any accrued but unpaid salary and other amounts to
which the
Executive otherwise is entitled hereunder prior to the date of
his termination
without Cause, such salary to be paid in accordance with Section
3(a) and such
other amounts to be paid in accordance with applicable payment
provisions
herein; (ii) receive bonus compensation earned but not paid
under Sections 3(b)
and (c) hereof that relates to any Contract Year ended prior to
the date of his
termination without Cause, to be paid in accordance with
Sections 3(b) and (c)
hereof; (iii) receive a pro-rata portion of the annual bonus
payout that the
Executive would have been entitled to receive had he remained in
employment
through the end of the Contract Year during which the
termination without Cause
occurred, based on the portion of the Contract Year that has
elapsed prior to
such termination, and paid in accordance with Section 3(c)
hereof; (iv) receive
as damages (A) for a period ending on a date two (2) years from
the date of
termination without Cause, to be paid in accordance with Section
6(l)(i), his
Base Salary as established under and in accordance with Section
3(a) hereof and
(B) bonus compensation equal to fifty percent (50%) of the
average of the actual
annual bonuses paid or payable (with respect to completed
Contract Years) to the
Executive during the Term of Employment, or, if such termination
occurs prior to
the payment of any bonus hereunder, $1,250,000.00, to be paid in
accordance with
Section 6(l)(i); (v) receive reimbursement for financial
counseling services
specified under Section 5(b) hereof in the amount of $5,000.00
for each year
during a period of two (2) years from the date of termination,
in accordance
with Section 5(b) hereof; and (vi) participate for a period
ending on a date two
(2) years from the date of termination without Cause (the
"Without Cause
Continuation Period"), to the extent permitted by applicable law
and regulations
and the applicable benefit plan, program or arrangement, in the
supplemental
deferral arrangement discussed in Section 3(e) hereof, and in
any and all
healthcare, life insurance and accidental death and
dismemberment insurance
benefit plans, programs or arrangements, on terms identical to
those applicable
to full-term senior officers of the Company. Because continued
participation in
any qualified pension and qualified retirement savings plans of
the Company is
not permitted during the Without Cause Continuation Period, the
Company shall
provide to the Executive, subject to Section 6(l), cash
payments, to be paid in
accordance with Section 6(l)(i), equal to the Pension
Replacement Payment (as
defined in Section 6(a)) with respect to the Without Cause
Continuation Period.
Notwithstanding the above, any amounts payable under this
Section 6(c) that are
separation pay as described under Treas. Reg.
ss.1.409A-1(b)(9)(iii)(A) shall be
paid no later than December 31 of the s
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