EXHIBIT
10.3
EXECUTIVE EXCISE TAX GROSS-UP
AGREEMENT
This agreement (the
“Agreement”) is made effective as of May 6, 2005 by and
between Hudson Highland Group, Inc. (the “Company”) and
Jon F. Chait (the “Executive”).
WHEREAS, the Company wishes to
continue to employ the Executive and the Executive wishes to
continue to be employed, in each case subject to the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of
the conditions and mutual covenants contained in this Agreement,
the parties agree as follows:
1. Covered Termination . If a
Change in Control (as defined below) occurs when the Executive is
employed by the Company and there is any termination of the
Executive’s employment during the period commencing on the
date of a Change in Control and ending on the first anniversary of
such date (the “Employment Period”) (subject to Section
4) by the Executive for Good Reason (as defined below), or by the
Company other than by reason of (i) the Executive’s death,
(ii) the Executive’s Disability (as defined below), or (iii)
Cause (as defined below) (a “Covered Termination”),
then the Executive shall be entitled to receive the benefits set
forth in Section 2.
2. Excise Tax Gross-Up
.
(a) If any payment under this
Agreement, or under any other agreement with or plan of the Company
(in the aggregate, “Total Payments”), would constitute
an “excess parachute payment” as defined in Section
280G (or any successor provision) of the Internal Revenue Code of
1986, including any amendments thereto or any successor tax codes
thereof (the “Code”), then the Company shall pay the
Executive an additional amount (the “Gross-Up Payment”)
such that the net amount retained by the Executive after deduction
of any excise tax imposed under Section 4999 (or any successor
provision) of the Code and any interest charges or penalties in
respect of the imposition of such excise tax (collectively, the
“Excise Tax”) (but not any federal, state or local
income tax, or employment tax) on the Total Payments, and any
federal, state and local income tax, employment tax, and excise tax
upon the payment provided for by this Section 2(a), shall be equal
to the Total Payments. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal
income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and
locality of the Executive’s domicile for income tax purposes
on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes that may be obtained from the
deduction of such state and local taxes. Notwithstanding the
foregoing, if it shall be determined that the Executive is entitled
to a Gross-Up Payment, but that the
Total Payments would not be subject
to the Excise Tax if the Total Payments were reduced by an amount
that is less than 10% of the Total Payments that would be treated
as “parachute payments” under Section 280G (or any
successor provision) of the Code, then the amounts payable to the
Executive under this Agreement shall be reduced (but not below
zero) to the maximum amount that could be paid to the Executive
without giving rise to the Excise Tax (the “Safe Harbor
Cap”), and no Gross-Up Payment shall be made to the
Executive. For purposes of reducing the Total Payments to the Safe
Harbor Cap, only amounts payable under this Agreement (and no other
Total Payments) shall be reduced. If the reduction of the amounts
payable hereunder would not result in a reduction of the Total
Payments to the Safe Harbor Cap, no amounts payable under this
Agreement shall be reduced pursuant to this provision.
(b) For purposes of this Agreement,
the terms “excess parachute payment” and
“parachute payments” shall have the meanings assigned
to them in Section 280G (or any successor provision) of the Code
and such “parachute payments” shall be valued as
provided therein. Present value for purposes of this Agreement
shall be calculated in accordance with Section 1274(b)(2) (or any
successor provision) of the Code. Promptly following a Covered
Termination or notice by the Company to the Executive of its belief
that there is a payment or benefit due the Executive which will
result in an “excess parachute payment” as defined in
Section 280G of the Code (or any successor provision), the
Executive and the Company, at the Company’s expense, shall
obtain the opinion (which need not be unqualified) of nationally
recognized tax counsel (“National Tax Counsel”)
selected by the Company’s independent auditors and reasonably
acceptable to the Executive (which may be regular outside counsel
to the Company), which opinion sets forth (i) the amount of the
Base Period Income, (ii) the amount and present value of Total
Payments, (iii) the amount and present value of any excess
parachute payments, and (iv) the amount of any Gross-Up Payment or
the reduction of any Total Payments to the Safe Harbor Cap, as the
case may be. As used in this Agreement, the term “Base Period
Income” means an amount equal to the Executive’s
“annualized includable compensation for the base
period” as defined in Section 280G(d)(1) (or any successor
provision) of the Code. For purposes of such opinion, the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Company’s independent auditors in
accordance with the principles of Section 280G(d)(3) and (4) (or
any successor provisions) of the Code, which determination shall be
evidenced in a certificate of such auditors addressed to the
Company and the Executive. The opinion of National Tax Counsel
shall be addressed to the Company and the Executive and shall be
binding upon the Company and the Executive. If such National Tax
Counsel so requests in connection with the opinion required by this
Section 2(b), the Executive and the Company shall obtain, at the
Company’s expense, and the National Tax Counsel may rely on,
the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to
be received by the Executive solely with respect to its status
under Section 280G of the Code and the regulations thereunder.
Within five (5) days after the National Tax Counsel’s opinion
is received by the
2
Company and the Executive, the
Company shall pay (or cause to be paid) or distribute (or cause to
be distributed) to or for the benefit of the Executive such amounts
as are then due to the Executive under this Agreement.
(c) In the event that upon any audit
by the Internal Revenue Service, or by a state or local taxing
authority, of the Total Payments or Gross-Up Payment, a change is
finally determined to be required in the amount of taxes paid by
the Executive, appropriate adjustments shall be made under this
Agreement such that the net amount which is payable to the
Executive after taking into account the provisions of Section 4999
(or any successor provision) of the Code shall reflect the intent
of the parties as expressed in this Section 2, in the manner
determined by the National Tax Counsel.
(d) The Company agrees to bear all
costs associated with, and to indemnify and hold harmless, the
National Tax Counsel of and from any and all claims, damages, and
expenses resulting from or relating to its determinations pursuant
to this Section 2, except for claims, damages or expenses resulting
from the gross negligence or willful misconduct of such
firm.
3. Additional Benefits . If
there is a Covered Termination, then the Company shall bear up to
$15,000 in the aggregate of fees and expenses of consultants and/or
legal or accounting advisors engaged by the Executive to advise the
Executive as to matters relating to the computation of benefits due
and payable under Section 2.
4. Anticipatory Termination .
Anything in this Agreement to the contrary notwithstanding, if a
Change in Control occurs and if the Executive’s employment
with the Company is terminated (other than a termination due to the
Executive’s death or as a result of the Executive’s
Disability) during the period of 180 days prior to the date on
which the Change in Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment
(a) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control or (b)
otherwise arose in connection with or in anticipation of a Change
in Control, then for all purposes of Sections 1 and 2
