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EXHIBIT 10.12.1
AMENDMENT NUMBER ONE
TO
WESTERN DIGITAL CORPORATION
EXTENDED SEVERANCE PLAN
THIS AMENDMENT NUMBER ONE (this "Amendment") is made as of the 1st
day of September, 1995 and, as set forth below, amends and modifies the Western
Digital Corporation Extended Severance Plan (the "Plan") established by Western
Digital Corporation, a Delaware corporation (the "Company") as of January 18,
1990. Capitalized terms that are not otherwise defined herein shall have the
meanings given them in the Plan.
1. DELETION OF SECTION 280G LIMITATION. Section 4.8 of the Plan,
entitled "Section 280G Limitation," is hereby deleted in its entirety and shall
no longer be of any force or effect.
2. SUBSTITUTION OF TAX INDEMNIFICATION PROVISION. A new Section 4.8
of the Plan, entitled "Indemnification for Excise Tax", is hereby added to and
made a part of the Plan, effective the date of this Amendment. The complete text
of this new Section 4.8 of the Plan is attached hereto as Exhibit A and
incorporated herein by this reference.
3. NO OTHER CHANGES. Except as set forth in this Amendment, the
provisions of the Plan remain unaltered and in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
adopted and to be effective as of the date first above written.
WESTERN DIGITAL CORPORATION
By: /s/ Michael A. Cornelius
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Title: V.P., Law
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By: -------------------------
Title:
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EXHIBIT A
4.8 INDEMNIFICATION FOR EXCISE TAX.
(a) Notwithstanding anything to the contrary contained herein, in
the event it shall be determined that any payment, benefit or distribution
provided or to be provided by the Company (or by any person whose actions result
in a Change of Control or any person affiliated with the Company or such person)
to or for the benefit of a Participant (whether provided, or to be provided,
pursuant to the terms of the Plan or under any other agreement, plan or
arrangement with the Company (or with any person whose actions result in a
Change of Control or any person affiliated with the Company or such person), but
determined without regard to any additional payments required under this Section
4.8) (a "Payment"), would be subject to any excise tax imposed by Section 4999
of the code or any comparable federal, state or local excise tax (such excise
tax, together with any related interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Participant shall be
entitled to receive from the Company an additional payment (a "Gross-Up
Payment") in such an amount that after the payment of all taxes on the Payment
and on the Gross-Up Payment (including interest and penalties attributable to
all taxes on the Gross-Up Payment or the Excise Tax but excluding interest and
penalties attributable to the Payment itself), the Participant shall retain an
amount equal to the Payment minus all applicable taxes on the Payment itself
(other than the Excise Tax on the Payment); provided, however, that a
Participant will be entitled to receive a Gross-Up Payment only if the amount of
"parachute payment" as defined in Section 280G(b)(2) of the Code exceeds the sum
of (A) the lesser of (I) $100,000 or (ii) ten (10) percent of the Payment plus
(B) 2.99 times the Participant's "base amount" as defined in Section 280G(b)(3)
of the Code, and provided, further, that if a Participant is not entitled to
receive a Gross-Up Payment, the Participant will receive only an amount of total
Payment that would not include any "excess parachute payment" as defined in
Section 280G(b)(1) of the Code. The intent of the parties is that, unless a
Payment is reduced under the circumstances provided immediately above, 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, as
well as any loss of tax deduction caused by the Gross-Up Payment. An example of
a calculation of the Gross-Up Payment is appended.
(b) All determinations required to be made under this Section ,
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 Price Waterhouse or any other
nationally recognized accounting firm which is the Company's outside auditor at
the time of such determinations, which firm must be reasonably acceptable to the
Participant (the
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"Accounting Firm"). The Company shall cause the Accounting Firm to provide
detailed supporting calculations to the Company and the Participant within
fifteen (15) business days after notice is given by the Participant to the
Company that there has been a Payment, or such earlier time as is requested by
the Company. Within two (2) 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 4.8 to the Participant. All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment
as determined pursuant to this Section 4.8 shall be paid, or caused to be paid,
by the Company to the Internal Revenue Service and/or other appropriate taxing
authority on the Participant's behalf within five (5) days after receipt of the
Accounting Firm's determination. If the Accounting Firm determines that there is
substantial authority (within the meaning of Section 6662 of the Code) that no
Excise Tax is payable by the Participant, the Accounting Firm shall furnish the
Participant with a written opinion that failure to disclose or report the Excise
Tax on the Participant'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 Participant 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 a Gross-Up
Payment will not have been made by the Company that should have been made
("Underpayment") or that a Gross-Up Payment is 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 pursuant
to Paragraph (c) below and the Participant thereafter 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,
or caused to be paid, by the Company to the Internal Revenue Service or other
appropriate taxing authority on the Participant's behalf or, if such
Underpayment has been previously paid by the Participant, to the Participant. In
the event that the Accounting Firm determines that an Overpayment has been made,
any such Overpayment shall be treated for all purposes as a loan to the
Participant with interest at applicable federal rate provided for in Section
7872(f)(2) of the Code, due and payable within ninety (90) days after written
demand to the Participant by the Company; provided, however, that the
Participant shall have no duty or obligation whatsoever to repay said loan
unless and then to the extent the Participant's receipt of the Overpayment, or
any portion thereof, is includible in the Participant's income and the
Participant's repayment of the same is not deductible by the Participant for
federal and state income tax purposes.
(c) The Participant 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
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Participant is informed in writing of the Claim and shall fully inform 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
Participant 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 Participant in writing prior to the
expiration of such thirty (30) day period that it desires to contest the Claim,
the Participant shall:
(A) give the Company any information reasonably requested by the
Company relating to the Claim;
(B) take such action in connection with the 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
Participant; 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 and
attorneys' fees) incurred in such contests and shall indemnify and hold the
Participant 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 Section 4.8(c) and 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 appeals, proceedings, hearings and conferences
with the taxing authority pertaining to the Claim. At the written request of the
Company and upon payment to the Participant 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 Participant shall pay
the same and sue for a refund. The Participant 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 Participant t pay
the Claim and sue for a refund, it shall indemnify and hold the Participant
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
Participant which is the subject of the Claim is to 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
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payable hereunder. The Participant 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 Participant of an amount advanced
by the Company pursuant to Section 4.8(c) above, the Participant receives any
refund of a Claim and/or any Additional Sum, the Participant shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Participant of an amount advanced by the Company pursuant to Section 4.8(c)
above, a determination is made that the Participant shall not be entitled to any
refund of the Claim and the Company does not notify the Participant 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 Participant.
(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 Participant 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 Participant within thirty (30) days after the Participant 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.
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GROSS-UP FACTOR
APPLICABLE TAX RATES
INCOME TAXES:
FEDERAL MAXIMUM RATE 36.000%
FEDERAL SURTAX 3.600%
FEDERAL TAX EFFECT OF ITEMIZED
DEDUCTION PHASE OUT 1.188%
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TOTAL FEDERAL INCOME TAX RATE 40.788%
CALIFORNIA MAXIMUM RATE 11.000 %
Less: FEDERAL BENEFIT OF DEDUCTION (4.356)%
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NET CALIFORNIA INCOME TAX RATE 6.64%
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TOTAL INCOME TAX RATE 47.432%
EMPLOYMENT TAXES:
RATE FOR HI PORTION OF FICA 1.450%
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RATE OF INCOME AND EMPLOYMENT TAXES
IMPOSED ON GROSS-UP PAYMENT 48.882%
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EXCISE TAX:
RATE OF FEDERAL EXCISE TAX ON EXCESS
PARACHUTE PAYMENTS AND GROSS-UP
PAYMENT 20.000%
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THE GROSS-UP PAYMENT ("GUP") IS AN AMOUNT SUFFICIENT TO SATISFY THE LIABILITY
FOR FEDERAL EXCISE TAX ON THE EXCESS PARACHUTE PAYMENTS ("EPP") EXCLUSIVE OF THE
GROSS-UP PAYMENT, THE EXCISE TAX ON THE GROSS-UP PAYMENT, AND THE INCOME AND
EMPLOYMENT TAXES IMPOSED ON THE GROSS-UP PAYMENT.
EXPRESSED ALGEBRAICALLY...
GUP = .2EPP + .2GUP + .48882GUP
GUP = .2EPP + .68882GUP
.31118GUP = .2EPP
GUP = .6427148EPP
THEREFORE, GIVEN THE TAX RATE ASSUMPTIONS SET FORTH ABOVE, THE GROSS-UP PAYMENT
WOULD EQUAL 64.27148% OF THE EXCESS PARACHUTE PAYMENT.
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EXAMPLE:
PARACHUTE PAYMENTS 500,000
BASE AMOUNT 100,000
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EXCESS PARACHUTE PAYMENTS 400,000
GROSS-UP FACTOR 64.27148 %
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GROSS-UP PAYMENT 257,086
PARACHUTE PAYMENTS 500,000
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TOTAL PAYMENTS 757,086
LESS EXCISE TAX ON EXCESS PARACHUTE
PAYMENTS AND GROSS-UP PAYMENT
(.2 x [400,000 + 257,086]) (131,417)
LESS INCOME AND EMPLOYMENT TAXES ON GROSS-UP
PAYMENT (.48882 x 257,086) (125,669)
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NET PAYMENT RETAINED BY THE PARTICIPANT 500,000
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