HAPPY KIDS INC.
AMENDMENT NO. 1 TO
CHANGE IN CONTROL SEVERANCE PAY AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment"), dated as of July 1, 1999, to that
certain CHANGE IN CONTROL SEVERANCE PAY AGREEMENT, made as of the 12th day of
January, 1999 (the "Severance Pay Agreement"), by and between Happy Kids Inc., a
New York corporation (the "Company"), and Xxxxxx Xxxxxx, an employee of the
Company (the "Employee").
Recitals:
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WHEREAS, the Company and the Employee, in order to provide for the payment,
in certain instances, of severance pay to the Employee in the event of the
termination of Employee's employment in connection with certain changes in
control of the Company, have entered into the Severance Pay Agreement; and
WHEREAS, the Company and the Employee intended that such payments made
pursuant to the Severance Pay Agreement would qualify under the provisions of
Section 280G of the Internal Revenue Code (the "Code") for exemption pursuant to
Code Section 280G(b)(5); and
WHEREAS, the Company and the Employee now desire to clarify such intention
in the Severance Pay Agreement by way of this Amendment thereto;
NOW, THEREFORE, such Severance Pay Agreement shall be amended as follows:
Agreement:
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In consideration of the premises and the mutual covenants and conditions
set forth herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Company and the Employee agree as follows:
Section 1. Amendment. The Severance Pay Agreement shall be amended such
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that Section 3A shall be added thereto, to read in its entirety as follows:
"Section 3A. Tax Issues.
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(a) Excise Tax Exemption. The Severance Amount payable under this
Agreement is assumed to satisfy the requirements for an excess parachute payment
exemption under Section 280G(b)(5) of the Internal Revenue Code (the "Code") and
the regulations thereunder. If the Severance Amount payable under this Agreement
is deemed not to meet the requirements of Code Section 280G(b)(5), or such
successor Code Section thereto, then Section 3A(b) of this Agreement shall
apply.
(b) Determination of Alternative Severance Amount Limit. Subject to
Section 3A(a) herein, but notwithstanding any other provision of this Agreement,
if any portion of the Severance Amount or any other payment under this
Agreement, or under any other agreement with, or plan of the Company or any of
its affiliates or subsidiaries (in the aggregate "Total Payments") would
constitute an "excess parachute payment", then the payments to be made to the
Employee under this Agreement shall be reduced such that the value of the
aggregate Total Payments that the Employee is entitled to receive shall be one
dollar ($1) less than the maximum amount which the Employee may receive without
becoming subject to the tax imposed by Code Section 4999. However, such
reduction in Severance Amount shall apply if, and only if, the resulting
Severance Amount with such reduction is greater in value to the Employee than
the value of the Severance Amount without a reduction, net of any tax imposed on
the Employee pursuant to Code Section 4999.
For purposes of this Agreement, the terms "excess parachute payment" and
"parachute payments" shall have the meanings assigned to such terms in Section
280G of the Code, and such "parachute payments" shall be valued as provided
therein.
(c) Procedure for Establishing Alternative Limitation. Within fifteen (15)
calendar days following delivery of notice by the Company to the Employee of its
belief that there is a payment or benefit due the Employee which will result in
an "excess parachute payment", the Employee and the Company, at the Company's
expense and discretion, shall obtain the opinion of the Company's outside law
firm, which sets forth: (1) the amount of the Employee's annualized includable
compensation for the base period (as defined in Code Section 280G(d)(1); (2) the
present value of the Total Payment; and (3) the amount and present value of any
"excess parachute payment".
In any event that such opinion determines that there would be an "excess
parachute payment," such that a reduction in the Severance Amount would result
in a greater net benefit to the Employee (as provided in Section 3A(b) hereof),
then the Severance Amount hereunder or any other payment determined by such
counsel to be includable in Total Payments shall be reduced or eliminated as
specified by the Employee in writing delivered to the Company within ten (10)
calendar days of his receipt of such opinion, or, if the Employee fails to so
notify the Company, then as the Company shall reasonably determine, so that
under the basis of calculations set forth in such opinion, there will be no
"excess parachute payment"."
Section 2. Severability. Should any clause, portion or section of this
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Amendment be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
the Amendment.
Section 3. Assignment: Successors in Interest. This Amendment, being
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personal to the Employee, may not be assigned by the Employee. The terms and
conditions of this Amendment shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 4. Waiver. Failure to insist upon strict compliance with any of
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the terms, covenants or conditions of this Amendment shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
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Section 5. Governing Law. This Amendment shall be governed by and
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construed in accordance with the laws of the State of New York applicable in the
case of agreements made and to be performed entirely within such State.
Section 6. Arbitration. Any controversy or claim arising out of or in
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connection with this Amendment shall be settled by arbitration in accordance
with the rules of the American Arbitration Association then in effect in the
State of New York and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the State of New York. The arbitration award shall include attorneys' fees
and costs to the prevailing party.
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IN WITNESS WHEREOF, this Amendment has been executed by the undersigned as
of the date first above written.
HAPPY KIDS INC.
By:/s/ Xxxx Xxxxx
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Xxxx Xxxxx,
President and Chief Executive Officer
THE EMPLOYEE
/s/ Xxxxxx Xxxxxx
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Xxxxxx Xxxxxx
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