EXHIBIT 10.02
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT (this "Amendment" or "Agreement") is made as of the 2nd day
of August 2005 between Xxxxxx Scientific International Inc., a Delaware
corporation having its primary place of business at Xxxxxxx Xxxx, Xxxxxxx, Xxx
Xxxxxxxxx 00000 (the "Company") and Xxxx X. Xxxxxxxx (the "Executive").
The Company and the Executive desire to and hereby amend the Amended and
Restated Employment Agreement ("Employment Agreement") entered into between the
Company and the Executive on December 31, 2003, as follows:
1. The first sentence of Section 3(a) of the Employment Agreement is hereby
amended and restated to read as follows:
(a) Base Salary. The Executive shall be entitled to receive the annual
base salary in effect as of the date of this Amendment ("Annual Base
Salary"), which shall be paid in accordance with the Company's generally
applicable payroll practices and policies, provided that, if any amount is
not deductible under Section 162(m) that any portion of such base salary
(taking into account any increase therein after the date hereof) that, if
paid currently to the Executive, would not be deductible by the Company
due to the provisions of Section 162(m) of the Internal Revenue Code,
shall be mandatorily deferred and paid to the Executive within thirty (30)
days after Executive's Date of Termination.
2. Section 5(a)(ii) of the Employment Agreement shall be amended and restated to
read as follows:
(ii) subject to the Executive remaining reasonably available to assist the
Company, in such manner and at such time as shall be mutually agreed in
good faith upon the Company's request through appropriate notice to the
Executive, in the transition of his duties and responsibilities hereunder,
the Company shall pay to the Executive within thirty (30) days following
his Date of Termination an amount equal to the product of three (3) times
the sum of: (x) the Executive's Annual Base Salary plus (y) the
Executive's target annual bonus as determined under the Company's
applicable compensation and incentive plan(s). It is expressly understood
that the assistance to be provided to the Company under this clause (ii)
shall not involve any fixed time commitment on the part of the Executive.
For purposes of this Amendment, "Severance Period" shall mean the
three-year period commencing on the Date of Termination.
3. A new Section 9 shall be added to the Employment Agreement, stating:
9. Certain Additional Benefits.
(a) In the event that any payment(s), benefit(s) or other
entitlement(s) received or to be received by the Executive in connection
with a Change in Control of the Company, as defined in the Company's 2005
Equity and Incentive Plan, as that plan may be amended from time to time
prior to any Change in Control, or it is determined that any payment or
distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Amendment but determined without regard to any additional
payments required under this Section 9 (a "Payment")), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") or any comparable federal, state or local
excise tax (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment")
in such an amount that after the payment of all taxes (including, without
limitation, any interest and penalties on such taxes and the Excise Tax)
on the Payment and on the Gross-Up Payment, the Executive shall retain an
amount equal to the Payment minus all applicable taxes other than the
Excise Tax on the Payment; provided, however, that the Executive will be
entitled to receive a Gross-Up Payment only if the amount of a parachute
payment as defined in Section 280G(b)(2) of the Code exceeds the sum of
(A) $50,000, plus (B) 2.99 times the Executive's base amount as defined in
Section 280G(b)(3) of the Code, and provided further, that if the
Executive is not entitled to receive a Gross-Up Payment, the Executive
will receive the greatest amount of Total Payments that would not include
any excess parachute payments as defined in Section 280G(b)(1) of the
Code. The intent of the parties is that the Company shall be solely
responsible for, and shall pay, any Excise Tax on any Payment and Gross-Up
Payment and any income and employment taxes (including, without
limitation, penalties and interest) imposed on any Gross-Up Payment, and
shall be liable for any loss of tax deduction caused by the Gross-Up
Payment.
(b) All determinations required to be made under this Section 9,
including, without limitation, whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determinations, shall be made by any
nationally recognized accounting firm, which firm must be acceptable to
the Executive (the "Accounting Firm"). The Company shall cause the
Accounting Firm to provide detailed supporting calculations to the Company
and the Executive within fifteen (15) business days after notice is given
by the Executive to the Company that there has been a Payment, or such
earlier time as is requested by the Company. Within five (5) business days
after said notice is given to the Company, the Company shall instruct the
Accounting Firm to timely provide the data required by this Section 9 to
the Executive. All fees and expenses of the Accounting Firm
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shall be borne solely by the Company. Any Gross-Up Payment as determined
pursuant to this Section 9, shall be paid by the Company to the Internal
Revenue Service and/or other appropriate taxing authority on the
Executive's behalf within five (5) days after receipt of the Accounting
Firm's determination. The Accounting Firm shall make all determinations
under the tax standard of "more likely than not." The Accounting Firm
shall furnish the Executive with a written opinion that failure to
disclose or report the Excise Tax on the Executive's federal income tax
return will not constitute a substantial understatement of tax or be
reasonably likely to result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive in the absence of material mathematical or
legal error. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payment will not
have been made by the Company that should have been made ("Underpayment")
or that the Gross-Up Payment was made that should not have been made
("Overpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
and the Executive hereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of Underpayment that
has occurred and any such Underpayment shall be promptly paid by the
Company to the Internal Revenue Service or other appropriate taxing
authority on the Executive's behalf or, if such Underpayment has been
previously paid by the Executive, to the Executive. In the event that the
Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be due and payable within ninety (90) days after written
demand to the Executive by the Company; provided, however that the
Executive shall have no duty or obligation whatsoever to repay said amount
unless the Executive's receipt of the Overpayment, or any portion thereof,
is includible in the Executive's income and the Executive's repayment of
same is not deductible by the Executive for federal and state income tax
purposes.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service or state or local taxing authority, that,
if successful, would result in any Excise Tax or an Underpayment
("Claim"). Such notice shall be given as soon as practicable but no later
than fifteen (15) business days after the Executive is informed in writing
of the Claim and shall apprise the Company of the nature of the Claim, the
administrative or judicial appeal period, and the date on which any
payment of the Claim must be paid. The Executive shall not pay any portion
of the Claim prior to the expiration of the thirty (30) day period
following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any amount under the Claim is due).
If the Company notifies the Executive in writing prior to the expiration
of such thirty (30) day period that it desires to contest the Claim, the
Executive shall:
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(A) give the Company any information reasonably requested by
the Company relating to the Claim;
(B) take such action in connection with contesting the Claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
concerning the Claim by an attorney selected by the Company who is
reasonably acceptable to the Executive; and
(C) cooperate with the Company in good faith in order to
effectively contest the Claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including, without limitation, additional interest and
penalties, attorneys' fees and costs) incurred in such contests and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including, without limitation, interest and
penalties thereon) imposed as a result of such representation. Without
limitation upon the foregoing provisions of this Paragraph 9, except as
provided below, the Company shall control all proceedings concerning such
contest and, at its sole option, may pursue or forego any and all
administrative appeal, proceedings, hearings and conferences with the
taxing authority pertaining to the Claim. At the written request of the
Company and upon payment to the Executive of an amount at least equal to
the Claim plus any additional amount necessary to obtain the jurisdiction
of the appropriate tribunal and/or court ("Additional Sum"), the Executive
shall pay same and xxx for a refund. The Executive agrees to prosecute any
contest of a Claim 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
requests the Executive to pay the Claim and xxx for interest-free basis,
the Company shall indemnify and hold the Executive harmless on an
after-tax basis, from any Excise Tax or income tax (including, without
limitation, interest and penalties thereon) imposed on such advance or for
any imputed income on such advance. Any extension of the statute of
limitations relating to assessment of any Excise Tax for the taxable year
of the Executive which is the subject of the Claim shall be limited solely
to the Claim. Furthermore, the Company's control of the contest shall be
limited to issues for which a Gross-Up Payment would be payable hereunder.
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.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9, the Executive receives any refund of a
Claim and/or any Additional Sum, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after
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taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9, a determination is
made that the Executive shall not be entitled to any refund of the Claim
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund of a Claim prior to the expiration of thirty
(30) days after such determination, then the portion of such advance
attributable to a Claim shall be forgiven and shall not be required to be
repaid. The amount of such advance attributable to a Claim shall offset,
to the extent thereof, the amount of the Underpayment required to be paid
by the Company to the Executive.
(e) If, after the advance of an Additional Sum by the Company, there
is a "Final Determination" (as defined below) made by the taxing authority
that the Executive is not entitled to any refund of such Additional Sum,
or any portion thereof, then such nonrefundable amount shall be repaid to
the Company by the Executive within thirty (30) days after the Executive
receives notice of such Final Determination. A "Final Determination" shall
occur when the period to contest or otherwise appeal any decision by an
administrative tribunal or court of initial jurisdiction has been waived
or the time for contesting or appealing same has expired.
4. A new Section 10 shall be added to the Employment Agreement, stating:
10. Code Section 409A. This Amendment is intended to comply with the
provisions of Section 409A of the Code in such a way that the Executive
will not be subject to taxation in advance of the related distribution,
excise taxes or underpayments, penalties as a result of the timing or form
of the payments to the Executive. Notwithstanding anything to the contrary
contained herein, if the Executive is a Specified Employee (as defined in
Section 409A of the Code) at the time he would otherwise be entitled to
receive any specific payment hereunder, no distributions shall be made
with respect to that specific payment until the earliest date permitted by
Section 409A(a)(2) of the Code. All other payments which do not result in
any additional payments, liability or penalties shall be made as
specified. To the extent any payment is delayed, interest will accrue at
the rate of the United States five-year Treasury rate plus 2 percent on
such delayed payment and be paid to the Executive at the same time as the
delayed payment is made.
5. Sections 9, 10 and 11 in the Employment Agreement shall be renumbered
Sections 11, 12 and 13, respectively and any and all references to the
paragraphs 9, 10, and 11 in the Employment Agreement shall be revised and
renumbered consistent with this change.
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6. Except as expressly provided in this Amendment, the terms and provisions of
the Amended and Restated Employment Agreement shall remain in full force and
effect.
The Executive has hereunto set the Executive's hand and, pursuant to the
authorization from the Compensation Committee of the Board of Directors, the
Company has caused this Agreement to be executed in its name on its behalf, all
as of the day and year first above written.
/s/ Xxxx X. Xxxxxxxx
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XXXX X. XXXXXXXX
XXXXXX SCIENTIFIC INTERNATIONAL INC.
/s/ Xxxx X. Xxxxxxx
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By: XXXX X. XXXXXXX
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