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EXHIBIT 10.4
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TAX PAYMENT AGREEMENT
WHEREAS, NES Group, Inc. ("Shareholder") is the sole Shareholder of
Paragon Corporate Holdings Inc. ("Paragon"), Paragon is the sole Shareholder of
A. B. Dick Company ("A. B. Dick") and Xxxxxx Industries, Inc. ("Xxxxxx"), A. B.
Dick is the sole shareholder of ITEK Graphix Corp. ("ITEK"), and Xxxxxx is the
sole shareholder of Xxxxxx Sub, Inc. ("Xxxxxx Sub"); Paragon, A. B. Dick,
Curtis, ITEK, and Xxxxxx Sub are herein collectively called the "Subsidiaries"
and each individually called "Subsidiary"), and
WHEREAS, the Subsidiaries have elected to be treated as "S" Corporations
for U.S. Federal Income Tax purposes, and
WHEREAS, the taxable income of the Subsidiaries will be included in the
income of Shareholder for Federal Income Tax purposes, and the tax thereon is
payable by the shareholders of Shareholder, and similar consequences may result
for state or local tax purposes a well;
NOW, THEREFORE, in consideration of the mutual promises herein exchanged
and for other good and valuable consideration, the receipt and sufficiency of
which is mutually acknowledged, the parties agree that the Subsidiaries shall
each make estimated tax payments to Shareholder as set forth herein based on
their respective earnings:
1. Within fifteen (15) days after the end of each month, each Subsidiary
shall make distributions to Shareholder relating to the federal, state, local,
and foreign income taxes relating to such Subsidiary's operations in an amount
that is equal to the Stand-Alone Taxes for such month and the accrued and
unreimbursed Reimbursements, as described in Paragraph 3 below, provided that:
a) Subsidiary will be during the entire taxable period to which
the distribution relates an S Corporation for Federal Income Tax
purposes;
b) If the distributions made with respect to a calendar year
exceed the actual taxes for such calendar year (or as subsequently
adjusted by taxpayer and the taxing authority), the excess will be
returned to Subsidiary not later than 45 days after the taxpayer has
received the refund;
c) Distributions shall be made by each Subsidiary with respect
to state or local income taxes in a manner similar to Federal Income
Tax, but only if (i) there is state or local income tax rules providing
for pass-through treatment that is similar to the treatment under the
Subchapter S rules of the Internal Revenue Code of 1986, and (ii) the
Subsidiary is qualified for such treatment for the entire taxable
period.
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2. Distributions that comply with the requirements of 1. above shall be
made in one or more installments, including without limitation catch-up
installments at or after the end of a month or tax year, installments after
adjustments made by the Internal Revenue Service, and installments made for
Reimbursements.
3. Definitions:
a) "Reimbursements" means an amount equal to the sum of interest
and penalties imposed on the Subsidiary's Shareholder as a result of an
incorrect calculation by such Subsidiary of the amount distributed to
such Shareholder by the Subsidiary, adjustments made by the IRS relating
to the Subsidiary, and late tax distributions made by the Subsidiary to
such Shareholder. Notwithstanding the foregoing, Reimbursements shall
not include any amount described in the preceding sentence to the extent
such amount is as a result of, or directly attributable to, an action or
inaction taken by the Subsidiary's Shareholder.
b) "Stand-Alone Tax" means an amount (which shall never be less
than zero) computed as of the end of any month for the total U.S.
federal, state, local, and foreign (but only to the extent that foreign
taxes are imposed on the Subsidiary's income, but paid or payable by its
Shareholder, or by the direct or indirect individual shareholder(s) of
its Shareholder, to the foreign jurisdiction imposing such taxes on
behalf of the Subsidiary) income taxes (a) for which direct or indirect
individual shareholders of Subsidiary's Shareholder would be liable if
such Shareholder's income was only from the items of income, gain, loss,
deduction, or credit reportable by the Subsidiary for such tax purposes
for the period beginning on the first day of such month and ending on
the last day of such month, determined on an annualized basis, or (b)
one twelfth (1/12) of the tax liability expected to be reported for the
year, whichever is greater. The tax rates applied to such income are to
be based on the maximum individual U.S. federal, state, local, and
foreign income tax rates imposed by Section 1 of the Internal Revenue
Code of 1986, as amended and as it may be amended, and by the equivalent
provisions of the state, local, and foreign (but only to the extent that
foreign taxes are imposed on the Subsidiary's income, but paid or
payable by its Shareholder to the foreign jurisdiction imposing such
taxes on behalf of the Subsidiary) income taxes (based on the assumption
that all tax payments are subject to state or municipality). All of the
preceding shall be computed without regard to phase-in and phase-out
rules for minimum tax and alternative minimum tax, interest, and
penalties, but shall include any surtax, and shall reflect the benefits
of the deductibility of state and local income taxes and allowable tax
credits in effect for each of the respective taxable periods. These tax
payments will not recognize any future carry forward or carry back tax
benefits to Paragon, A. B. Dick, Curtis, ITEK, and Xxxxxx Sub.
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c) For the purposes of this Agreement the term "subsidiary"
shall mean all present and future direct and indirect subsidiaries of
Paragon Corporate Holdings Inc.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed effective as of the 1st day of April, 1998.
PARAGON CORPORATE HOLDINGS INC. A. B. DICK COMPANY
By: /s/ Xxxxxx X. XxXxxxxxx By: /s/ Xxxxxx X. XxXxxxxxx
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Its: President & CEO Its: President & CEO
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XXXXXX INDUSTRIES, INC. NES GROUP, INC.
By: /s/ A. Xxxxx Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
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Its: Senior Vice President Its: President
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XXXXXX SUB, INC. ITEK GRAPHIX CORP.
By: /s/ A. Xxxxx Xxxxxxx By: /s/ Xxxxxx X. XxXxxxxxx
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Its: Senior Vice President Its: President
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