EXHIBIT 2.1(a)
TAX PROCEDURES AGREEMENT
THIS TAX PROCEDURES AGREEMENT is made and entered into as of
_________________, 1998, by and among, Sealright Co., Inc., a Delaware
corporation (the "Company"), Sealright Manufacturing East, Inc. (East"), a
______ corporation.
RECITALS
WHEREAS, the Company is the common parent of an affiliated group of
corporations, within the meaning of section 1504(a) of the Internal Revenue Code
of 1986 (the "Code"), which files a Federal consolidated income tax return (the
"Sealright Consolidated Group");
WHEREAS, the Company's affiliated group of corporations includes among
others East and Sealright Manufacturing West, Inc. ("West");
WHEREAS, Huhtamaki Oy ("Parent"), Seal Acquisition Corporation
("Merger Sub") and the Company have entered into an Agreement and Plan of Merger
made and entered into as of March 2, 1998 (the "Merger Agreement"), pursuant to
which Merger Sub will merge with and into the Company;
WHEREAS, the Company will contribute or cause to be contributed to
East all of the Excluded Assets (within the meaning of the Merger Agreement);
WHEREAS, contemporaneous with and as part of the merger contemplated
in the Merger Agreement, West will distribute all of the issued and outstanding
stock of East to the Company and the Company will distribute all of the issued
and outstanding stock of East to the Company's shareholders of record as of the
effective date of the merger of Merger Sub with and into the Company;
WHEREAS, pursuant to Treasury Regulation (S) 1.1502-6, the Company and
each member of the Sealright Consolidated Group, including East, is severally
liable for the consolidated Federal income tax liability of the Sealright
Consolidated Group;
WHEREAS, pursuant to Section 2.4 of the Merger Agreement, the Company
and East are to enter into this Tax Procedures Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
Article I
Definitions
1.1 Definitions. As used herein, the following terms shall have the
following meanings unless the context otherwise specifies:
"Affiliate" of any person means any person, corporation,
partnership or other entity directly or indirectly controlling, controlled
by or under common control with such person. Reference to an Affiliate of
the Company shall mean any Affiliate of the Company, excluding, after the
Distribution Date, East.
"Distribution Date" means the date on which the Company
distributes its East stock to the Company's shareholders of record as of
the effective date of the merger of Merger Sub with and into the Company.
"Flexible Business" means the business of manufacturing and
selling flexible packaging and labeling for the food, dairy and beverage
market, and machines for the application of sleeve labels to plastic
bottles, operated by the Company, directly or indirectly through certain of
its subsidiaries, including the ownership and sale of the Excluded Assets.
"Pre-Distribution Tax Liability" means (i) the Federal Tax
liability of the Company and each corporation included in the Sealright
Consolidated Group for any period as to which a consolidated Federal income
Tax Return was filed by the Company for such group, and (ii) the state Tax
liability of any consolidated, combined or unitary group which includes the
Company or any of its Affiliates, for all taxable periods beginning before
the Distribution Date, regardless of whether any such liability has been
previously assessed in whole or in part or is assessed in whole or part
after the date of this Agreement, or whether such liability is or was
imposed on the Sealright Consolidated Group or on any corporation included
within such group separately.
"Short Period" shall mean the period beginning on January 1, 1998
and ending on or immediately prior to the Distribution Date.
"Tax Affiliate" shall mean, with respect to a company, any member
of an affiliated group as defined in section 1504 of the Code, or member of
a combined or unitary group of which such company is or was a member.
1.2 Additional Terms. For purposes of this Agreement, unless
otherwise expressly provided:
(1) All references herein to Sections or other subdivisions,
unless
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otherwise specified, refer to the corresponding Sections and other
subdivisions of this Agreement;
(2) The terms "hereof", "herein", "hereby", "hereunder" and
"herewith" refer to this Agreement;
(3) The capitalized terms used herein which are defined in the
Merger Agreement shall have the respective meanings stated in such Merger
Agreement; and
(4) Words of the masculine gender shall be deemed to include the
feminine and neuter genders, and vice versa, where applicable. Words of the
singular number shall be deemed to include the plural number, and vice
versa, where applicable.
Article II
Tax Sharing Arrangements
2.1 Termination of Tax Sharing Arrangements. Except as provided in
this Agreement, all tax sharing agreements or similar arrangements with respect
to or involving East or any of its direct or indirect subsidiaries shall be
terminated at or immediately prior to the Distribution Date and, after the
Distribution Date, East shall not be bound thereby or have any liability
thereunder on amounts due in respect of taxable periods beginning prior to the
Distribution Date. After the Distribution Date, this Agreement shall constitute
the sole tax sharing agreement or arrangement among the Company and East and any
affiliate thereof (or any predecessor thereof).
2.2 Filing Returns. The Company shall prepare (or cause to be
prepared) and file (or cause to be filed) the consolidated Federal income tax
return of the Sealright Consolidated Group and all other consolidated, combined
or unitary Tax Returns of the Company and any of its Tax Affiliates, which Tax
Returns include East (and the business operations contained in East as of the
Distribution Date), and shall report the operations of East (and the business
operations contained in East as of the Distribution Date) in such Tax Returns
for all taxable periods of East ending on or prior to the Distribution Date.
East shall be responsible for preparing and filing all Tax Returns required to
be filed on or on behalf of East or any of its Tax Affiliates, for all taxable
periods ending after the Distribution Date. The Tax Returns to be filed by the
Company or any of its Tax Affiliates (other than East), which include any
taxable period beginning before and ending after the Distribution Date, shall be
filed on a basis which is consistent with the manner in which the Company or its
Tax Affiliates filed such Tax Returns in the past, unless a contrary treatment
is required by law.
2.3 Tax Sharing Arrangement for Short Period. Subsequent to the
Distribution Date, the Company shall determine (i) the amount of net Federal
taxable income recognized by the Sealright Consolidated Group for the Short
Period attributable to the operations of the
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Flexible Business ("Short Period Federal Income") and (ii) the amount of net
taxable income recognized by the Company for the Short Period attributable to
the operations of the Flexible Business ("Short Period State Income") required
to be included on each state and local income or franchise Tax Return that the
Company or any Tax Affiliate of the Company (other than East) is obligated to
file pursuant to Section 2.2 ("State Income Tax Return"). In computing such
Short Period Federal Income and Short Period State Income, the parties will, to
the extent permitted by applicable law, elect to close the taxable period on the
Distribution Date. The Company shall promptly, upon making such determinations
referred to in the second preceding sentence, provide in writing to East copies
of such determinations and East shall have the right to verify and approve such
determinations. East shall complete its verification and approval within 30 days
after having been provided copies of the determination. If the Company and East
are unable to agree on the amount of the Short Period Federal Income and Short
Period State Income and the amounts payable under this Section 2.3, they shall
employ the services of a mutually agreeable nationally recognized accounting
firm to make a determination of such Short Period Federal Income and Short
Period State Income and the amounts payable under this Section 2.3, which
determination shall be binding upon the Company and East. The Company and East
shall each pay one half of the fees and expenses of such nationally recognized
accounting firm. Upon completion of the Company's Federal and State income tax
returns for the taxable years or periods that include the Short Period, the
Company shall promptly pay to East an amount equal to the excess, if any, of the
Company's aggregate Federal and State income tax, computed without taking into
account the Short Period Federal Income and the Short Period State Income, over
the amount of the Company's aggregate Federal and State income tax, computed
taking into account the Short Period Federal Income and the Short Period State
Income. Upon completion of the Company's Federal and State income tax returns
for the taxable years or periods that include the Short Period, East shall
promptly pay to the Company an amount equal to the excess, if any, of the
Company's aggregate Federal and State income tax, computed taking into account
the Short Period Federal Income and the Short Period State Income, over the
aggregate Federal and State income tax, computed without taking into account the
Short Period Federal Income and the Short Period State Income. To the extent the
benefit of any negative Federal Short Period Income or negative State Short
Period Income is not realized in the year including the Short Period, the
Company shall pay promptly East the amount of any such benefit realized at the
time such benefit is realized. For purposes of the computation of Short Period
Federal Income and Short Period State Income, such amounts shall not include any
amounts of gain or loss taken into account in the computation of Redemption
Consideration and shall include as a deduction the portion of the settlement
amount paid with respect to the options described in Section 8.15 of the Merger
Agreement attributable to the Flexible Shares portion.
2.4 Company Liability and Indemnity. Except as provided in Section
2.3 above and Section 2.6 below, the Company shall be responsible for all
Federal, state and local income Taxes of the Company and any Tax Affiliate. If
the Tax of the Company or any Tax Affiliate is adjusted for any period prior to
or including the Distribution Date, the Company shall keep any Tax refund and
shall be responsible for the payment of any additional Tax. The Company and
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each member of the Sealright Consolidated Group (excluding East) shall jointly
and severally indemnify East and any of its Affiliates against and hold them
harmless from any Pre-Distribution Tax Liability and any liability for fees,
costs and expenses (including reasonable attorneys' fees) arising out of or
incident to any proceeding before any taxing authority or any judicial authority
with respect to an amount indemnified pursuant to this sentence.
2.5 East Liability and Indemnity. East shall indemnify the Company
and each member of the Sealright Consolidated Group against and hold them
harmless from any liability resulting from any Taxes of East or any of its
Affiliates with respect to any taxable period beginning on or after the
Distribution Date and any liability for fees, costs and expenses (including
reasonable attorneys' fees) arising out of or incident to any proceeding before
any taxing authority or any judicial authority with respect to an amount
indemnified pursuant to this sentence.
2.6 East Liability and Indemnity. Notwithstanding Section 2.4 hereof,
if (i) there is an adjustment to the Company's income Tax liability attributable
to the Flexible Business and (ii) such adjustment results in an increase in
income Tax liability computed on the basis as if the Flexible Business was
operated as a separate corporation, East shall indemnify the Company for the
amount of such increased Tax. For purposes of this computation, the Federal or
state taxable income attributable to the Flexible Business and Tax shall be
computed by separating the income or expenses which are directly allocable to
the Flexible Business and the indirect expense, including the sales and general
and administrative expenses, shall be allocated consistent with the allocation
set forth in the side letter dated March 2, 1998 between Parent and the Company.
Article III
Carrybacks of Net Operating Losses and Tax Credits
3.1 East Carryback of Net Operating Losses. If East, or an East Tax
Affiliate, incurs a net operating loss in a taxable period beginning on or after
the Distribution Date that may be carried back to a consolidated Federal income
tax return of the Sealright Consolidated Group, East shall make an election
pursuant to section 172(b)(3) of the Code to relinquish the entire carryback
period with respect to any such net operating loss.
3.2 East Carryback of Tax Attributes which Must be Carried Back. If
East, or an East Tax Affiliate, incurs a net capital loss, business credit or
other Tax attribute in a taxable period beginning on or after the Distribution
Date that must be carried back to a Company consolidated, combined or unitary
Tax Return, East may file a refund claim or application for adjustment only
after receiving the written consent of the Company. In the event the Company
receives a refund (or credit against Taxes) attributable to such claim or
application, the Company shall promptly pay East the amount of such refund or
credit (including any interest payable thereon by the governmental authority or
interest which would had been received from the governmental authority if the
Tax had not been credited).
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Article IV
Representations and Covenants
4.1 Cooperation. The Company and East shall cooperate (and shall
cause each of their Affiliates to cooperate) fully at such time and to the
extent reasonably requested by the other party in connection with the
preparation and filing of any Tax Return, claim for refund or other claim with
respect to Taxes or the conduct of any audit, dispute, proceeding, suit or
action concerning any Tax Return, amounts indemnifiable hereunder or any matter
contemplated hereunder. Such cooperation shall include, without limitation, (i)
the retention and provision for inspection on reasonable request of books,
records, documentation or other information relating to any Tax Return until the
expiration of seven years after the closing of the merger contemplated in the
Merger Agreement; (ii) the provision of additional information and explanation
of material provided under clause (i) of this Section 4.1; (iii) the execution
of any document that may be necessary or helpful in connection with the filing
of any Tax Return of the Company or any Affiliate of the Company, or by East or
any Affiliate of East, or any audit, proceeding, suit or action addressed in the
preceding sentence; and (iv) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing. On and after the seventh
anniversary of the closing of the merger contemplated in the Merger Agreement,
neither the Company nor East shall destroy or dispose or allow the destruction
or disposition of such books, records, documentation or other information
relating to any Tax Return without first having offered in writing to deliver
such books, records, documentation or other information to the other party at
such other party's expense. If such other party fails to request copies of such
books, records, documentation or other information within 90 days after the
receipt of the notice described in the preceding sentence, the notifying party
may dispose of such books, records, documentation or other information.
4.2 Elections. The Company shall not modify or make any election
(except as required by law) with respect to Taxes affecting or binding East or
any Affiliate of East for any taxable period ending after the Distribution Date
without the prior written consent of East, which consent shall not be
unreasonably withheld.
4.3 Section 338(h)(10) Election. If the stock of East is sold in a
Permitted Transaction, the Company agrees that it will make an election under
section 338(h)(10) of the Code (or applicable state election) with respect to
such sale and will take any other actions reasonably required to effectuate such
election, if requested in writing by East and such section 338(h)(10) election
would not result in greater aggregate Federal and state income tax to the
Company and its Affiliates than would result if such election or elections were
not made.
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Article V
Tax Reporting with respect to East Distribution
5.1 Tax Reporting. The parties agree to report that, for Tax
purposes, the value of the East stock distributed by the Company is equal to the
fair market value of East. The parties agree that East's fair market value is
equal to $38 million.
Article VI
Miscellaneous
6.1 Notices. All notice, demand, claim or other communication under
this Agreement shall be in writing and shall be deemed to have been given upon
the delivery or mailing thereof, as the case may be, if delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses (or at such other address as a party may
specify by notice to the other):
If to the Company:
Huhtamaki Oy
Xxxxxxxxxxxxxx 0
00000 XXX00
Xxxxxxx
(000) 000-0-0000-00 (telephone)
(000) 000-0-0000-0000 (telecopier)
If to East:
G. Xxxxxxx Xxxx
c/o Xxxxxx X. Xxxx & Company
Twelve Wyandotte Plaza
000 Xxxx 00xx Xxxxxx
Xxxxxx Xxxx, XX 00000
(000) 000-0000 (telephone)
(000) 000-0000 (telecopier)
6.2 Section Headings. The section heading contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.3 Amendments; No Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Parent and East, or in the
case of a waiver, by the party
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against whom the waiver is effective. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege.
6.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Missouri.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instruments.
6.6 Assignment. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, provided
that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties
hereto.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
SEALRIGHT CO., INC.
By________________________________
Name:
Title:
SEALRIGHT MANUFACTURING EAST, INC.
By________________________________
Name:
Title:
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