TAX INDEMNIFICATION AGREEMENT
This Tax Indemnification Agreement (this "Agreement"), is
entered into this ___ day of ____________, 1997, by and between X.X. XXXXXXXXX &
COMPANY, INC., a Delaware corporation, ("the Company"), X.X. XXXXXXXXX &
COMPANY, INC., a Pennsylvania corporation ("JGW"), X.X. XXXXXXXXX FUNDING CORP.,
a Pennsylvania corporation ("MFC GP"), X.X. XXXXXXXXX STRUCTURED SETTLEMENT
FUNDING CORPORATION, a Delaware corporation ("SSC GP" and together with MFC
Funding and JGW, the "Corporations"), and each of Xxxxx X. Xxxxxxx ("Xxxxxxx"),
Xxxxxxx X. Xxxxxxx ("Xxxxxxx"), ING (U.S.) Capital Corporation, Alpha
Xxxxxxxxxxx, Xxxxxx X. Xxxxx and Xxxx Xxxxxxx ("Xxxxxxx") (collectively, the
"Contributing Holders").
W I T N E S S E T H:
WHEREAS, immediately prior to the date of this Agreement,
Xxxxxxx and Veloric collectively held all of the issued and outstanding capital
stock of JGW and SSC GP and all of the limited partnership interests in X.X.
Xxxxxxxxx MFC Associates, L.P., a Pennsylvania limited partners ship ("MFC");
WHEREAS, immediately prior to the date of this Agreement,
Xxxxxxx, Xxxxxxx and Xxxxxxx collectively held all of the issued and outstanding
capital stock of SSC GP;
WHEREAS, the Contributing Holders collectively own all of the
limited partnership interest in X.X. Xxxxxxxxx S.S.C. Limited Partnership, a
Delaware limited partnership ("SSC" and, together with MFC, the "Partnerships");
WHEREAS, each of the Corporations was an S corporation within
the meaning of Section 1361 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the corresponding provisions of state income tax law,
effective from its date of incorporation through the day preceding the date of
this Agreement (the "S Period");
WHEREAS, each of the Partnerships has been and will continue
to be taxed as a partnership for federal and state income tax purposes;
WHEREAS, concurrently with the execution of this Agreement,
pursuant to the Contribution Agreement between the Contributing Holders and the
Company dated October , 1997, the Contributing Holders have contributed all of
their shares of capital stock of the Corporations and all of their limited
partnership interests in MFC and SSC held by them to the Company in exchange for
the issuance to the Contributing Holders shares of its common stock, $.01 par
value per share (the "Reorganization");
WHEREAS, each of the corporations will be C corporations
within the meaning of Section 1361 of the Code and the corresponding provisions
of state income tax law from the date of this Agreement and thereafter;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained herein, the parties hereto agree as follows:
1. Representations and Warranties of the Parties.
The Contributing Holders jointly and severally
represent and warrant to the Company and the Corporations that:
(a) During the S Period, the Contributing Holders
duly and timely filed all tax reports and returns required to be filed by them
("Shareholder Tax Returns").
(b) The Contributing Holders have duly included, or
will duly include, in their Shareholder Tax Returns their allocable share of the
Corporation's taxable income from all sources through and including the last
business day of the S Period (the "S Corporation Taxable Income"), except for
amounts owed with respect to the Corporation's Pennsylvania state corporate net
income tax, which has been paid by the Corporations ("Pennsylvania CNI").
(c) There are no audits, inquiries, investigations or
examinations relating to any of the Shareholder Tax Returns pending, and there
are no claims which have been asserted relating to any of the Shareholder Tax
Returns which if determined adversely would result in the assertion by any
entity of the federal government or State government of any federal or state
income tax ("Tax") deficiency against the Company or the Corporations.
2. Indemnifications and Reimbursement.
(a) Except as set forth in subparagraph (c) below,
the Contributing Holders severally, but not jointly, shall be responsible for
and shall indemnify and save and hold harmless the Company and the Corporations
against all Tax (other than any amounts owed by the Corporations with respect to
Pennsylvania CNI) imposed on the Company or the Corporations resulting from the
business or operations of the Corporations or the Partnerships prior to the
consummation of the Reorganization.
(b) The Company shall indemnify and save and hold
harmless each Contributing Holder from and against all Tax imposed on such
Contributing Holder resulting from the business and operations of the Company
after the consummation of the Reorganization. Further, the Company shall
indemnify and hold harmless the Contributing Holders from and against Tax
incurred by such Contributing Holders resulting from the receipt of any
indemnification payments made to such Contributing Holders pursuant to the
foregoing sentence.
(c) In the event that any federal or state authority
takes any action that results in any deductions from gross income from the
Partnerships and the Corporations taken by the Contributing Holders in the
Shareholder Tax Returns being disallowed and the effect of such disallowance is
to permit the Company or the Corporations to take such disallowed deductions or
deduction from its gross income after the consummation of the Reorganization,
the Company shall reimburse to the Contributing Holders an amount in cash equal
to the liability for the additional Tax (and all interest and penalties owed
with respect thereto) owed by the Contributing Holders resulting from such
disallowance.
(d) The Contributing Holders or the Company, as the
case may be, shall make any payment required under this Agreement within thirty
(30) days after receipt of notice from the other party that a payment is due by
such party to the appropriate authority.
(e) If a Tax audit is commenced with respect to the S
Period or any Tax is claimed for which the Contributing Holders would be
required to indemnify the Company, written notice thereof shall be given to the
Contributing Holders as promptly as practicable; provided, however, that the
failure to give timely notice shall not affect rights to indemnification
hereunder except to the extent that the Contributing Holders demonstrate actual
damage caused by such failure. After such notice, if the Contributing Holders
shall acknowledge in writing to the Company that they are obligated under the
terms of their indemnity hereunder in connection with such audit or claim, then
the Contributing Holders shall be entitled, if they so elect, to take control of
the defense and investigation of such audit or claim and to employ and engage
attorneys of their own choice to handle and defend the same, at the Contributing
Holders' cost, risk and expense provided that the Contributing Holders and their
counsel shall proceed with diligence and in good faith with respect thereto. If
the Tax audit relates to the activities of the Company, the Company shall pay
all costs and expenses related to, or in connection with, such audit. The
Company shall cooperate in all reasonable respects with the Contributing Holders
and such attorneys in the defense and investigation of such audit or claim and
any appeal arising therefrom, and shall not enter into any agreement with any
tax authority with respect to such audit or claim without the prior consent of
the Contributing Holders; provided, however, that the Company may, subject to
the Contributing Holders' control of the defense and investigation of such audit
or claim, at its own cost, participate in the defense and investigation of such
audit or claim and any appeal arising therefrom.
3. Deferred Tax Liability.
Notwithstanding the foregoing, the Contributing
Holders shall not be responsible for any portion of any deferred tax liability
which may be recorded on the balance sheet of the Corporations or the Company
upon termination of the S corporation status.
4. Notice.
All notices and other communications made in
connection with this Agreement shall be in writing and shall be deemed given
when delivered personally or sent by facsimile transmission to the numbers
indicated below (if physical confirmation of transmission is retained) or on the
third succeeding business day after being mailed by registered or certified
mail, deposited in the United States mail, postage prepaid, return receipt
requested, to the appropriate party at its, his or her address below or at such
other address for such party (as shall be specified by written notice when in
fact delivered pursuant hereto):
If to the Company at:
X.X. Xxxxxxxxx & Company, Inc.
The Xxxxxx Building
15th and Xxxxxxxx Xxxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
If to the Contributing Holders, at:
the address of such
Contributing Holder
as last appears in the books
and records of the Company
IN WITNESS WHEREOF, the parties have executed this Agreement,
as of this day of ___________________, 1997.
X.X. XXXXXXXXX & COMPANY, INC.,
a Delaware corporation
Name:
Title:
X.X. XXXXXXXXX & COMPANY, INC.,
a Pennsylvania corporation
By:
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Name:
Title:
X.X. XXXXXXXXX FUNDING CORP.,
a Pennsylvania corporation
By:
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Name:
Title:
X.X. STRUCTURED SETTLEMENT FUNDING CORP.,
a Delaware corporation
By:
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Name:
Title:
[signatures contained on following page]
[signatures continued from previous page]
The Contributing Holders:
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Xxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx
ING (U.S.) CAPITAL CORPORATION
By
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Name:
Title:
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Alpha Xxxxxxxxxxx
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Xxxxxx X. Xxxxx
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Xxxx Xxxxxxx
