TAX INDEMNIFICATION AGREEMENT
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AGREEMENT, made this ____ day of _______, 1997, by and among Xxxxxx
Xxxxx Inc., a Pennsylvania corporation ("Xxxxxx"), Xxxxxx Xxxxx Corp., a New
York corporation ("PLC"), and each of the other signatories hereto
(collectively, the "Shareholders" and each individually a "Shareholder").
W I T N E S S E T H:
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WHEREAS, from its incorporation, PLC has been taxed as an "S"
corporation under Subchapter S of Chapter 1 of the Internal Revenue Code of
1986, as amended (the "Code"), and under similar provisions of certain state and
local tax laws and will continue to be taxed as an S corporation until such
status is terminated in connection with the anticipated public sale of stock by
Xxxxxx and the expected merger (the "Merger") of PLC with and into Xxxxxx, with
Xxxxxx being the surviving corporation (the "S Corporation Period"); and
WHEREAS, for Federal and certain state and local income tax purposes,
PLC did not incur any income tax liability during the S Corporation Period, and
PLC's items of income, gain, loss and deductions were passed through to and
reported on the individual tax returns of the Shareholders; and
WHEREAS, during the S Corporation Period, PLC has distributed from
time to time to each Shareholder amounts to pay taxes attributable to such
Shareholder's share of PLC's items of income and gain; and
WHEREAS, as a result of the public sale of Xxxxxx'x stock and the
Merger, Xxxxxx, as the successor of PLC, will not be eligible to be taxed as an
S corporation for Federal, state and local income tax purposes; and
WHEREAS, the parties to this Agreement desire to set forth their
agreement with
respect to certain taxes (and related liabilities) which may be imposed upon the
Shareholders, as a result of their ownership of stock in PLC during the S
Corporation Period.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
1. Prior to or within ninety days following Xxxxxx'x initial public
offering, Xxxxxx will distribute to each Shareholder an amount of cash estimated
to be equal to the result of (a) the product of such Shareholder's pro rata
share of the Company's taxable income, for Federal and applicable state tax
purposes for each fiscal year of PLC through December 31, 1996, and for the
period beginning January 1, 1997 and ending on the termination of the Company's
(as hereinafter defined) status as an S Corporation (the "Termination Date"),
multiplied by the Effective Tax Rate, less (b) the amount of the distributions
previously made by PLC or Xxxxxx (PLC and after the Merger, Xxxxxx, as the
successor to PLC, is sometimes herein referred to as the "Company") to such
Shareholder to enable the Shareholder to make tax payments with respect to such
Shareholder's share of the Company's taxable income during the S Corporation
Period; provided, however, that no such payments need be made with respect to
Federal income taxes unless requested in writing by Shareholders who held at
least 85% of the outstanding shares of capital stock of PLC immediately
preceding the Merger. For purposes of this Agreement, the "Effective Tax Rate"
shall be the sum of the highest effective Federal and state income tax rates
applicable to any Shareholder.
2. (a) The Company agrees to indemnify, defend and hold harmless
each Shareholder, from and against any and all losses, liabilities, obligations,
damages, impositions, assessments, fines, deficiencies, costs and expenses,
including without limitation attorneys' and accountants' fees and expenses
(each, a "Loss") with respect to all Federal, state, city, or municipal taxes of
any kind whatsoever including taxes, interest, penalties, and additions to taxes
(collectively,
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"Taxes") imposed upon a Shareholder as a result of (i) any adjustment or change,
including any increase in items of income or gain or any decrease in items of
loss, deduction or credit reported to such Shareholder by the Company, with
respect to the income or loss of the Company during the S Corporation Period,
and (ii) any payment made in connection with a Loss under (i) above. Any
payment with respect to this indemnity shall be made by the Company, upon notice
from the Shareholder to the Company, at least ten days prior to the due date of
any payment required to be made by the Shareholder, in connection with Taxes.
(b) In the event any amount paid to a Shareholder by the Company
pursuant to subparagraph 2(a) is subsequently refunded or repaid to such
Shareholder by any taxing authority, such Shareholder agrees to repay to the
Company such refund or repayment, less any net tax or other cost incurred by the
Shareholder with respect to such amounts.
(c) Each Shareholder agrees to prepare his tax returns with respect to
the Company's "S Termination Year," within the meaning of (S)1362(e)(4) of the
Code, consistently with the manner in which each item of income, gain, loss,
deduction and credit of the Company for such year is reported to such
Shareholder.
3. The Company may, upon written notice from the Company to a
Shareholder, request that the Shareholder contest any adjustment proposed by a
taxing authority with respect to taxes for the S Corporation Period. If the
Company requests that any proposed adjustment be contested, then the Shareholder
shall, at the Company's expense, contest the proposed adjustment or permit the
Company and its representatives, at the Company's request, to contest the
proposed adjustment (including pursuing all administrative and judicial appeals
and processes) in the name of the Shareholder. The Company shall pay to the
Shareholder on demand all costs and expenses (including attorneys' fees) that
the Shareholder may incur in contesting such proposed adjustments.
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The Shareholder shall not make, accept or enter into a settlement or other
compromise with respect to any Taxes indemnified hereunder, or forego or
terminate any proceeding undertaken hereunder without the consent of the
Company, which consent shall not be unreasonably withheld. The cost of
contesting any challenge or adjustment to a tax return of the Company by the
Internal Revenue Service, or by any state or local administrative agency or
taxing authority, in any forum, judicial or administrative, shall be borne
solely by the Company.
4. In the case of a trust which is included within the terms
"Shareholder" and "Shareholders" under this Agreement, such terms shall also be
deemed to include for all purposes of this Agreement the beneficiary of such
trust, and this Agreement shall be applied taking into account that the
beneficiary of such trust is treated as the shareholder under Section 1361 of
the Code.
5. The covenants and agreements of the parties set forth in this
Agreement shall survive indefinitely.
6. All notices, requests, demands and other communications which are
required or which may be given under this Agreement shall be in writing.
7. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
8. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns and in the case
of a trust which is a Shareholder, the beneficiary of such trust.
9. No provision of this Agreement may be amended, waived or
otherwise modified without the prior written consent of each of the parties
hereto affected thereby.
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10. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereon, and all of which shall together constitute one and
the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories.
11. This Agreement shall be effective upon the Termination Date.
12. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Pennsylvania, without reference to the
principles of conflicts of law.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
XXXXXX XXXXX INC.,
a Pennsylvania corporation
ATTEST: By:
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[Corporate Seal]
XXXXXX XXXXX CORP.,
a New York corporation
ATTEST: By:
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[Corporate Seal]
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Xxx X. Xxxxxx, Xx., individually Eve Bullitt Xxxxxx, individually
and for the benefit of Xxxx Xxxxxx, and for the benefit of Xxxx Xxxxxx,
Xxxxxxxxx Xxxxxx and Xxxxx Xxxxxx Xxxxxxxxx Xxxxxx and Xxxxx Xxxxxx
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J. Xxxxx Xxxxxx, individually Xxxx X. Xxxxxx, Xx.
and for the benefit of Xxxxxxx Xxxxxx
Signatures Continued on Next Page
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Signatures Continued from Previous Page
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Xxxxxxx X. Xxxxxx, individually Xxxx X. Xxxxxx
and for the benefit of Xxxxxxx X. Xxxxxx
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Xxxxxxx Xxxxx, individually and Xxxxxxxxx X. Xxxxxxx, individually
for the benefit of Xxxxx Xxxxx, and for the benefit of Xxxxxx Xxxxxxx
and Xxxxxx X. Xxxxx, Xx., Xxxxxx Xxxxxxx
Xxxxx Xxxxx, Xxxxx Xxxxx
and Xxxxxxxx Xxxxx
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Xxxxxxx Xxx, individually and Xxxxxxx Xxx, Xx.
for the benefit of Xxxxxxxxxxx Xxx,
Xxxxxxx Xxx, Xxxxxx Xxx, Xxxxxxx Xxx,
Xxxxxxx Xxx, Xxxxxxx Xxx, Xxxxx Xxx and
Xxxxxxx Xxx
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Xxxxxx Xxx Xxxxxx Xxxxxxxxx Xxx
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Xxxxxx Xxx Fidurko Xxxxxxx Xxx
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Xxxxxxx Xxx, III Xxxxxxx Xxx
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Xxx X. Xxxxxx, Xx., Trustee under Xxxxxx X. Xxxxx, for the benefit of
Xxxxx Xxxxxx 1996 Irrevocable Trust Xxxxx Xxxxx, Xxxxx X. Xxxxx, Xxxxxx
X. Xxxxx, Xx., Xxxxx X. Xxxxx and
Xxxxxxxx X. Xxxxx
Signatures Continued on Next Page
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Signatures Continued from Previous Page
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J. Xxxxx Xxxxxx, Trustee under Xxxxxxxxx X. Xxxxxxx, Trustee under
Xxx X. Xxxxxx Trust for the Family Irrevocable Agreement of Trust dated
of J. Xxxxx Xxxxxx September 19, 1996 F/B/O
Xxxxx Xxxxxxxx Xxxxxx
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Xxxxxxxxx X. Xxxxxxx, Trustee under Xxxxxxxxx X. Xxxxxxx, Trustee under
Irrevocable Agreement of Trust dated Irrevocable Agreement of Trust dated
September 19, 1996 F/B/O Xxxx September 19, 1996 F/B/O
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxx Xxxxxx
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Xxxxxxxxx X. Xxxxxxx, Trustee under Xxxxxxxxx X. Xxxxxxx, Trustee under
Irrevocable Agreement of Trust dated Irrevocable Agreement of Trust dated
December 23, 1996, Xxx X. October 23, 1996 F/B/X
Xxxxxx, Settlor Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxx, Trustee under
Irrevocable Agreement of Trust dated
12/30/96 F/B/O Xxxxxxx X. Xxxxxx
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