FORM OF SUPPLEMENTAL AGREEMENT
This Supplemental Deferred Compensation Agreement ("Agreement") is made as
of this ____ day of December, 1997 between Compass International Services
Corporation ("Company") and __________________ ("Executive") (together the
"Parties").
WHEREAS, Executive is currently employed by Company as _____________;
WHEREAS, pursuant to that certain letter agreement dated as of ,
1997, between Executive and BGL Capital Partners, L.L.C., Executive purchased
____ shares of common stock of the Company, par value $.01 per share (the
"Shares") at a purchase price of $____ per share (the "Purchase Price"); and
WHEREAS, although the Company and Executive believe that the Purchase Price
paid for the Shares was equal to the Shares' fair market value at the date of
purchase, the Company agrees to pay additional compensation (the "Bonus") to
Executive should Executive become liable for additional income taxes due to a
determination that the fair market value of the Shares on the date of purchase
exceeded the Purchase Price. The Bonus shall be determined and paid in such
manner and on such terms and conditions as described below.
NOW, THEREFORE, in consideration of Executive continuing to serve as an
officer of the Company and for his continued service after the date hereof and
for other good and valid consideration, the Parties hereby agree as follows:
If Executive's 1997 federal income tax return is audited by the Internal
Revenue Service ("IRS") and if the IRS proposes an adjustment (the "Proposed
Adjustment") to Executive's 1997 income tax liability based upon its contention
that the Purchase Price for the Shares was less than fair market value at the
time of purchase, then Executive shall immediately notify Company of such
Proposed Adjustment and Company shall have the right (through its legal counsel
which is reasonably accepted to Executive) to negotiate with the IRS with
respect to such Proposed Adjustment and determine whether to settle or litigate
such Proposed Adjustment. Executive will cooperate with the Company, including
but not limited to granting an appropriate Power of Attorney to Company's
counsel, with respect to the above. All costs and expenses of such negotiation
and/or litigation shall be solely at the expense of the Company.
At such time as Company determines to accept or settle such Proposed
Adjustment or at such time as such Proposed Adjustment is the subject of a final
determination after litigation (the amount of which is the "Agreed Adjustment"),
Company will pay to Executive the Bonus.
The amount of the Bonus shall be (A) the sum of all federal, state and
local income, employment, social security and unemployment taxes and any
interest expense or penalties thereon ("Taxes") attributable to the Agreed
Adjustment less (B) the Tax Benefit Offset, as hereinafter defined, divided by
the reciprocal of the maximum combined federal, state and local (net of federal
benefit) income tax rates in effect in the year of payment (the "Gross-Up
Factor").
i.e. Bonus = Agreed Adjustment - Tax Benefit Offset
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Gross-Up Factor
Pursuant to the formula above, the amount of any Bonus to be paid by
Company to Executive hereunder shall be reduced by any reduction of Taxes
received by or to be received by Executive due to the additional income tax
basis that Executive will receive or has received in the Shares as a result of
the Agreed Adjustment (the "Tax Benefit Offset"). For any of the Shares sold by
Executive prior to the Bonus payment hereunder, such Tax Benefit Offset shall be
the actual Taxes saved as a result of Executive utilizing or having the right to
utilize such additional income tax basis. For purposes hereunder, Executive
shall have an affirmative obligation to amend any income tax returns previously
filed to properly take advantage of such additional income tax basis. With
respect to any Shares still held by Executive at the time of the Bonus payment
due hereunder, the Tax Benefit Offset attributable to such Shares shall be
calculated at an amount equal to 50% of the additional income tax basis times
the maximum federal and state and local (net of federal benefit) income tax
rates applicable to capital gains at that time.
The purpose of the Gross-Up Factor is to take into account that Executive
will be subject to income tax on the Bonus. The Gross-Up Factor is a mechanism
to place Executive in a position so that after paying his Taxes with respect to
the Bonus, his net after tax amount will be sufficient to cover the Agreed
Adjustment as reduced by the Tax Benefit Offset. For example, assume that the
Agreed Adjustment less the Tax Benefit Offset is $10,000. Further assume that
in the year of the Bonus payment, the maximum federal rate of income tax is 40%
and the maximum state rate is 5%. The amount of the compensation payment would
be $17,543 calculated pursuant to the following formula.
$10,000
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100% - (federal rate + state rate (net of federal benefit))
$10,000
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100% - (.40 + (.05 x 60%))
$10,000
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100% - 43%
$10,000 = $17,543
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The obligation of Company hereunder shall survive any transfer by Executive
of the Shares and any termination of Executive's employment by the Company.
The Parties agree that they will take such further actions and execute such
documents as are reasonably necessary to carry out the purposes and provisions
of this Agreement.
This Agreement will be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflicts of law.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:
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Title:
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Executive