EXHIBIT 10.6
TAX PAYMENT AGREEMENT (as same may be amended, modified, supplemented
or restated from time to time, this "Agreement"), dated as of September 28,
1999, among Sbarro, Inc., a New York corporation (the "Company"), and Xxxxx
Xxxxxx, Xxxxxx Xxxxxx, Xxxxxx Xxxxxx (1994) Family Limited Partnership (the
"Partnership"), Xxxxxxx Xxxxxx, and Xxxxx Xxxxxx and Xxxxxxxx Xxxxxxxxxx, not
individually but as trustees under that certain Trust Agreement dated April 28,
1984 for the benefit of Xxxxxxx Xxxxxx and her descendants.
WHEREAS, the Company may elect to be taxed under the provisions of
Subchapter S of the Code (as hereinafter defined) and comparable provisions of
applicable state and local law, commencing as early as the Company's fiscal year
2000, and may make distributions to the Shareholders (as hereinafter defined) in
order to facilitate their payment of income taxes that will be borne by them as
a result of that election; and
WHEREAS, the Indenture (as hereinafter defined) contains a limitation
on the amount of "Restricted Payments" that may be made by the Company, but
contemplates that, notwithstanding such limitation, the Company may make "Tax
Distributions" (as defined in the Indenture), in respect of periods for which
the Company is an S Corporation (as hereinafter defined); and
WHEREAS, the parties hereto desire to set forth such terms and
conditions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Annual Tax Payment Date" with respect to a taxable year of
an Individual means the due date for an Individual's federal income tax return
for such taxable year (without regard to any extension of time).
(b) "Applicable Percentage" with respect to an Estimated Tax
Payment Date is determined as follows:
Number of the Estimated Tax Payment Date Applicable
with respect to an Individual's taxable year Percentage
-------------------------------------------- ----------
1st 25%
2nd 50%
3rd 75%
4th 100%
(c) "Applicable Period" with respect to an Estimated Tax Payment
Date is determined as follows:
Number of the Estimated Tax Payment Date Applicable
with respect to an Individual's taxable year Period
-------------------------------------------- ------
1st 1st two 4-week periods of
the Company ending in
such taxable year
2nd 1st five 4-week periods of
the Company ending in
such taxable year
3rd 1st eight 4-week
periods of the
Company ending in
such taxable year
4th 1st twelve 4-week
periods of the
Company ending in
such taxable year
(d) "Capital Gain Rate" with respect to a particular class of Net
Capital Gains means the aggregate of the maximum marginal federal and New York
State income tax rates (including any surcharge thereon) imposed on such class
of Net Capital Gains of an Individual for the period to which the computation
relates (which period in the case of the computation with respect to an
Estimated Tax Payment Date shall be the Applicable Period), which shall be
reduced to take into account the deductibility of New York State income taxes
against ordinary income for federal income tax purposes (computed by assuming
that such deduction, if any, will be subject to any phase-out therefor under the
Code (i) based solely on (A) the taxable income of the Company for federal
income tax purposes, including amounts required to be separately stated, reduced
by the amount, if any, of Company-level tax imposed under Sections 1374 and/or
1375 of the Code (to the extent not otherwise taken into account in determining
taxable income), for the period to which the computation relates (as annualized
in accordance with paragraph 2 of this Agreement), and (B) the New York State
income tax thereon at the maximum marginal rates for an Individual and (ii)
assuming the Individual is in the maximum marginal federal ordinary income tax
bracket).
(e) "Carryforward Capital Loss" or Carryforward Ordinary Loss"
means, with respect to a taxable period, the aggregate Net Capital Losses or
Ordinary Losses, as the case may be, for all prior taxable years in which the
Company was an S Corporation, to the extent such Net Capital Losses or Ordinary
Losses, as the case may be, were not previously taken into account by reducing
the aggregate amount of payments or distributions (net of required repayments)
in respect of a prior taxable year under this Agreement.
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(f) "Code" means the U.S. Internal Revenue Code of 1986, as
amended and as the same may be amended from time to time and any successor
thereto. Any reference to a Code section, Chapter or Subchapter shall mean such
section, Chapter or Subchapter of the Code as the same may be amended and any
successor provision thereto.
(g) "Estimated Tax Payment Date" means each date by which an
Individual is required to pay estimated federal income tax with respect to a
taxable year of the Individual (determined without regard to whether estimated
tax payments are required to be made by any particular Shareholder and assuming
estimated tax payments are required to be paid by the Individual).
(h) "Indenture" means that certain Indenture of even date
herewith among the Company, various subsidiaries of the Company who are
guarantors thereunder and FIRSTAR Bank, as trustee, pursuant to which the
Company is initially issuing Notes.
(i) "Individual" means a hypothetical natural person who is a
shareholder of the Company, who is a resident of New York State (but not New
York City or Yonkers) and who uses the calendar year as his taxable year. This
definition is solely for purposes of making the calculations of payments or
distributions (or repayments) under this Agreement and shall not be deemed to
imply that any particular Shareholder is a natural person or resident of New
York State.
(j) "Net Capital Gain" (if positive) and "Net Capital Loss" (if
negative) for a taxable period means (i) the "net capital gain" or "net capital
loss", respectively, of the Company within the meaning of Section 1222 of the
Code, including amounts required to be separately stated, computed without
regard to any carryforward of any net operating loss or capital loss from a
prior taxable year, minus (ii) the amount, if any, of Company-level tax imposed
under Sections 1374 and/or 1375 of the Code with respect to such Net Capital
Gain (to the extent not otherwise taken into account in computing "net capital
gain" or "net capital loss"). Net Capital Gain for a taxable period shall not
exceed the taxable income of the Company for such period. A class of Net Capital
Gain shall refer to items of "net capital gain" under Section 1222 of the Code
that are subject to a particular federal income tax rate.
(k) "Notes" has the meaning ascribed to such term in the
Indenture.
(l) "Ordinary Income" (if positive) and "Ordinary Loss" (if
negative) for a taxable period means (i) the taxable income or taxable loss of
the Company for federal income tax purposes for such taxable period, including
amounts required to be separately stated, computed without regard to any item
included in determining Net Capital Gain or Net Capital Loss and without regard
to any carryforward of any net operating loss or capital loss from a prior
taxable year, (ii) minus the amount, if any, of Company-level tax imposed under
Sections 1374 and/or 1375 of the Code with respect to such taxable income (to
the extent not otherwise taken into account under clause (i)). The amount of
Ordinary Loss for a taxable period shall be reduced
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by the amount, if any, by which Net Capital Gain for such period is reduced as a
result of the penultimate sentence of the definition of Net Capital Gain.
(m) "Ordinary Rate" means the aggregate of the maximum marginal
federal and New York State income tax rates (including any surcharge thereon)
imposed on the ordinary taxable income of an Individual for the period to which
the computation relates (which period in the case of the computation with
respect to an Estimated Tax Payment Date shall be the Applicable Period), which
shall be reduced to take into account the deductibility of New York State income
taxes for federal income tax purposes (computed by assuming that such deduction,
if any, will be subject to any phase-out therefor under the Code (i) based
solely on (A) the taxable income of the Company for federal income tax purposes,
including amounts required to be separately stated, reduced by the amount, if
any, of Company-level tax imposed under Section 1374 and/or 1375 of the Code (to
the extent not otherwise taken into account in determining taxable income), for
the period to which the computation relates (as annualized in accordance with
paragraph 2 of this Agreement and (B) the New York State income tax thereon at
the maximum marginal rates for an Individual and (ii) assuming the Individual is
in the maximum marginal federal ordinary income tax bracket).
(n) "Person" means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an estate, an
unincorporated organization or a government or any department or agency thereof.
(o) "S Corporation" means a corporation that is treated as an "S
corporation" for federal income tax purposes.
(p) "Shareholders" means the holders of record of shares of
capital stock of the Company, as set forth on the stock records of the Company
on the applicable date as of which Shareholders are determined.
(q) "Tax Return Date" with respect to a taxable year of the
Company means the date on which the federal income tax return of the Company for
such taxable year is filed.
(r) "Trustee" means the trustee under the Indenture.
2. Estimated Tax Payment Distributions. Within 30 days before each
Estimated Tax Payment Date, the Chief Financial Officer of the Company shall:
(a) determine the Ordinary Income or Ordinary Loss and Net
Capital Gain or Net Capital Loss and, in the event of Net Capital Gain, the
amount of each class of Net Capital Gain, for the Applicable Period to which the
Estimated Tax Payment Date relates, which (i) in the case of Ordinary Income or
Net Capital Gain shall be reduced (but not below zero) by the Carryforward
Ordinary Loss or Carryforward Net Capital Loss, respectively, if any and (ii) in
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the case of Net Capital Gain, shall be further reduced (but not below zero) by
any remaining Carryforward Ordinary Loss (after application under clause (i));
(b) annualize each of the amounts determined under clause (a) by
dividing each such amount by the number of weeks in the Applicable Period and
multiplying the result by the number of weeks in the taxable year of the Company
that ends (or is deemed to end) with or within the Individual's taxable year to
which the Estimated Tax Payment Date relates;
(c) multiply the annualized amount of Ordinary Income determined
under clause (b) by the Ordinary Rate and by the Applicable Percentage with
respect to the Estimated Tax Payment Date, and for each class of Net Capital
Gain multiply the portion of the annualized amount of Net Capital Gain with
respect to such class by the applicable Capital Gain Rate with respect to such
class and by the Applicable Percentage with respect to the Estimated Tax Payment
Date;
(d) add the products determined under clause (c) and reduce such
amount (but not below zero) by the aggregate amount of any prior distributions
made pursuant to this Agreement with respect to the taxable year of an
Individual to which the Estimated Tax Payment Date relates.
Not earlier than 10 days before, and not later than 10 days after, each
Estimated Tax Payment Date, the Company may pay or distribute to or for the
benefit of the Shareholders in cash an aggregate amount up to the amount
determined under clause (d) with respect to such Estimated Tax Payment Date.
3. Annual Tax Payment Distribution. Within 30 days before each Annual
Tax Payment Date, the Chief Financial Officer of the Company shall determine the
Ordinary Income or Ordinary Loss and Net Capital Gain or Net Capital Loss and,
in the event there is Net Capital Gain, the amount of each class of Net Capital
Gain, for the taxable year of the Company that ends (or is deemed to end) with
or within the Individual's taxable year to which the Annual Tax Payment Date
relates. Not earlier than 10 days before, and not later than 10 days after, an
Annual Tax Payment Date, the Company may pay or distribute to or for the benefit
of the Shareholders in cash an aggregate amount up to the excess, if any, of (a)
the sum of (i) the product of such Ordinary Income for such taxable year,
reduced (but not below zero) by the Carryforward Ordinary Loss, if any, and
multiplied by the Ordinary Rate, and (ii) the product of each class of Net
Capital Gain for such taxable year, reduced (but not below zero) by the
applicable Carryforward Net Capital Loss, if any, and by any Carryforward
Ordinary Loss (to the extent not taken into account in clause (i) above) and
multiplied by the applicable Capital Gain Rate with respect to such class, over
(b) the aggregate amount of any prior payments or distributions made to or for
the benefit of the Shareholders pursuant to this Agreement with respect to such
taxable year.
4. Adjustment for Under and Excess Distributions. Not earlier than the
date on which the certificate of the Company's certified independent accountants
required pursuant to
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Section 4.14(d)(iv) of the Indenture is given to the Trustee, and not later than
10 days thereafter, the Company may pay or distribute to or for the benefit of
the Shareholders in cash an aggregate amount up to the excess, if any, of the
amount that would be determined under clause (a) of paragraph 3 of this
Agreement over the amount that would be determined under clause (b) of paragraph
3 of this Agreement, in each case utilizing the Ordinary Income and Net Capital
Gains reflected on the Company's federal income tax return filed with respect to
the taxable year of the Company to which such Tax Return Date relates and taking
into account any additional payments or distributions that were made pursuant to
this Agreement with respect to such taxable year. If the amount so determined
under clause (b) of paragraph 3 of this Agreement exceeds the amount so
determined under clause (a) of paragraph 3 of this Agreement, the Company shall
promptly notify each Shareholder of such excess payment or distribution,
including a calculation of such excess and the portion thereof related to the
shares owned by such Shareholder (as determined by the Company through the Board
of Directors whose determination shall be conclusive and binding on the
parties), and each Shareholder shall repay to the Company such portion of the
excess as is related to the shares owned by such Shareholder in cash within 75
days from the date of such notice, plus an amount equal to interest thereon at
the overpayment rate under Section 6621 of the Code from the due date of such
repayment to the date of repayment. Subsequent payments or distributions to or
for the benefit of the Shareholders pursuant to this Agreement shall be reduced
by the aggregate amount, if any, required to be repaid to the Company pursuant
to the preceding sentence that has not been repaid. The Company may offset any
payment or distribution hereunder to or for the benefit of a Shareholder against
the amount such Shareholder is required to repay to the Company that has not
been repaid by such Shareholder. If (a) payments or distributions to or for the
benefit of Shareholders pursuant to this Agreement have been reduced pursuant to
the third sentence of paragraph 4 or the third sentence of paragraph 5 by an
amount required to be repaid by a Shareholder that has not been repaid and (b)
(i) subsequent to such reduction such Shareholder repays such amount to the
Company or (ii) subsequent to or after giving effect to such reduction such
amount is offset against any payment or distribution pursuant to this Agreement
to or for the benefit of such Shareholder, the Company may make additional
distributions pursuant to this Agreement to or for the benefit of the
Shareholders in an amount equal to the amount so repaid or offset (in each case,
exclusive of amounts measured by interest), provided that at no time shall the
aggregate payments or distributions to or for the benefit of Shareholders
pursuant to this Agreement (net of repayments and amounts required to be repaid
(in each case, exclusive of amounts measured by interest)) exceed the aggregate
amount (net or repayments and amounts required to be repaid (in each case,
exclusive of amounts measured by interest)) that would have been paid or
distributed to or for the benefit of Shareholders pursuant to this Agreement if
such Shareholder had not defaulted in such Shareholder's obligations to repay
any amount to the Company pursuant to this Agreement.
5. Effects of Tax Calculation Changes. If the Company's Ordinary Income
or any Net Capital Gain as reflected on its tax return for any taxable year in
which the Company is an S Corporation (or any portion of such year) is changed
for any reason, including as a result of an amended tax return or audit, the
Company may pay or distribute to or for the benefit of the Shareholders in cash
not later than 30 days after such change is determined an aggregate amount
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up to the sum of (a) the excess, if any, of the amount that would be determined
under clause (a) of paragraph 3 of this Agreement over the amount that would be
determined under clause (b) of paragraph 3 of this Agreement, in each case
utilizing such adjusted Ordinary Income or Net Capital Gain and taking into
account any additional payments or distributions that were made pursuant to this
Agreement with respect to such taxable year and any repayments of distributions
pursuant to this Agreement with respect to such taxable year, plus (b) interest
thereon at the underpayment rate under Section 6621 of the Code from the Annual
Tax Payment Date for such taxable year to the date of payment and any penalty
imposed to the extent the penalty relates to any item from the Company. If the
amount so determined under clause (b) of paragraph 3 of this Agreement exceeds
the amount so determined under clause (a) of paragraph 3 of this Agreement, the
Company shall promptly notify each Shareholder of such excess payment or
distribution, including a calculation of such excess and the portion thereof
related to the shares owned by such Shareholder (as determined by the Company
through the Board of Directors, whose determination shall be conclusive and
binding on the parties) and each Shareholder shall repay to the Company such
portion of the excess payment or distribution as is related to the shares owned
by such Shareholder in cash within 75 days from the date of notice thereof from
the Company, plus an amount equal to interest thereon at the overpayment rate
under Section 6621 of the Code from the later of (i) April 15 of the year
following the calendar year to which the repayment relates or (ii) the date on
which the payment or distribution causing the overpayment was made, to the date
of repayment. Subsequent payments or distributions to or for the benefit of the
Shareholders pursuant to this Agreement shall be reduced by the aggregate
amount, if any, required to be repaid to the Company pursuant to the preceding
sentence that has not been repaid. The Company may offset any payment or
distribution hereunder to or for the benefit of a Shareholder against the amount
such Shareholder is required to repay to the Company that has not been repaid by
such Shareholder.
6. Effects of S Corporation Cessation. The provisions of this Agreement
providing for payments or distributions by the Company to or for the benefit of
Shareholders shall apply only in respect of periods for which the Company is an
S Corporation. If the Company ceases to be an S Corporation, the Company shall
promptly notify each Shareholder of any payments or distributions to or for the
benefit of the Shareholders that were made hereunder with respect to periods
following the date the Company ceased to be an S Corporation, including a
calculation of such amount and the portion thereof related to the shares owned
by such Shareholder (as determined by the Company through the Board of
Directors, whose determination shall be conclusive and binding on the parties)
and each Shareholder shall repay to the Company such portion of such amount as
is related to the shares owned by such Shareholder in cash within 75 days from
the date of notice thereof from the Company, plus an amount equal to interest
thereon at the overpayment rate under Section 6621 of the Code from April 15 of
the years following the year to which such repayments relate to the date of
repayment. All repayments by Shareholders pursuant to paragraphs 4, 5 or 6 of
this Agreement (including any amounts measured by interest thereon as set forth
in such paragraphs) shall be deemed to be contributions to the capital of the
Company.
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7. Company Covenants with Respect to S Corporation Election. The
Company has covenanted in the Indenture that: (a) if it elects to be treated as
an S Corporation, (i) it will elect to be treated as an "S corporation" or its
equivalent for state and local income tax purposes and (ii) with respect to each
of the Company's subsidiaries as to which the Company makes a valid "qualified
subchapter S subsidiary" election under Section 1361(b)(3) of the Code, the
Company will make an equivalent election for state and local income tax
purposes, in each case in each state and locality in which the Company does
business that permits such an election, for the earliest possible tax year, and
(b) except in connection with the termination of the Company's status as an S
Corporation, the Company shall not take any action which it knows would
terminate any election made to be treated as an "S corporation" or its
equivalent for state or local income tax purposes, or for one or more of its
subsidiaries to be treated as a "qualified subchapter S subsidiary" or its
equivalent for state or local income tax purposes. If the Company fails to
qualify as an "S corporation" or its equivalent, or if a subsidiary of the
Company fails to be treated as a "qualified subchapter S subsidiary" or its
equivalent, for state or local income tax purposes for any reason (including
failing to elect to be treated as an "S corporation" or its equivalent or as a
"qualified subchapter S subsidiary" or its equivalent) in any jurisdiction that
permits such characterization for any taxable year in which the Company is an S
Corporation, subsequent payments or distributions to or for the benefit of the
Shareholders pursuant to this Agreement shall be reduced (but not below zero) by
an aggregate amount equal to the amount of the increase, if any, in the
Company-level income taxes (including state and local taxes) for such taxable
year as a result of the failure to so qualify.
8. Tax Withholding. The Company shall withhold and timely pay over to
the appropriate taxing authority any income taxes required to be withheld from
payments or distributions made to or for the benefit of Shareholders pursuant to
this Agreement. The Company may elect to file one or more composite income tax
returns where permitted under applicable state or local law, in lieu of the
Shareholders filing individual income tax returns and may pay the tax shown to
be due on such returns. The Company may pay to the appropriate taxing authority
any income tax required to be paid by the Company on behalf of such Shareholders
to such taxing authorities. Payments pursuant to either of the two immediately
preceding sentences shall be treated as payments or distributions to or for the
benefit of such Shareholders pursuant to this Agreement. Subsequent payments or
distributions to or for the benefit of the Shareholders pursuant to this
Agreement shall be reduced by the aggregate amount by which the payments taken
into account pursuant to the immediately preceding sentence exceed the amounts
that would otherwise be paid or distributed pursuant to this Agreement. The
Company may offset any payment or distribution hereunder to or for the benefit
of a Shareholder against the benefit received by such Shareholder pursuant to
this paragraph 8 (to the extent not previously offset).
9. Change in Estimated Tax Laws or the Company's Fiscal Year. In the
event there is a change in the manner, timing or amount of an Individual's
required payments of estimated tax under the Code or applicable New York State
law, or a change in the Company's taxable year to the calendar year, the
payments and distributions permitted under this Agreement shall be adjusted to
take into account such changes in such fashion as may reasonably be
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determined in good faith by the Board of Directors of the Company to permit the
Company to make payments and distributions to or for the benefit of the
Shareholders that would enable an Individual to pay his estimated tax amounts
with respect to items of or relating to the Company without incurring any
interest, addition to tax or penalty (to the same extent contemplated by this
Agreement with respect to current law). All such reasonable determinations made
in good faith by the Board of Directors shall be binding upon all parties to
this Agreement.
10. Change to Partnership Status. The Company may convert from an S
Corporation to an entity taxable as a partnership for federal income tax
purposes, provided such conversion is not otherwise prohibited by the Indenture
(without regard to this Agreement). The Company shall pay any Company-level tax
imposed with respect to such conversion. Subsequent payments or distributions to
or for the benefit of the Shareholders pursuant to this Agreement shall be
reduced by an aggregate amount equal to the amount of the Company-level income
tax payable with respect to such conversion. References in this Agreement to S
Corporation shall include the Company following such conversion, so long as it
is classified as a partnership for federal income tax purposes.
11. Term.
This Agreement shall commence on the date hereof and terminate when
agreed to in a writing signed by or on behalf of (under proper authorization)
Shareholders owning shares of capital stock of the Company possessing at least
80% of the voting power in the election of directors of all capital stock of the
Company, except that the obligations of Shareholders to make any repayments
pursuant to paragraphs 4, 5 and 6 of this Agreement (including any amounts
measured by interest thereon as set forth in such paragraphs) shall survive such
termination.
12. Future Transferees.
(a) To enable the Company to elect to be taxed as an S Corporation, the
Partnership agrees that, on or before December 31, 1999 (or such later date as
the Company, acting through its Board of Directors, may establish), the
Partnership shall transfer all of the shares of the Company's capital stock
owned by it to one or more (but no more than four in addition to Xxxxxx Xxxxxx)
Persons, each of whom is, and will continue to be, eligible to be a shareholder
of an S Corporation.
(b) The Shareholders agree not to, from the date hereof through March
15, 2002 (or such earlier date as the Company through its Board of Directors
affirmatively determines that it will not make an election before March 15, 2002
to be treated as an S Corporation), and during any period during which the
Company is an S Corporation, transfer (whether by sale, gift, inheritance,
bequest or otherwise), nor agree to transfer nor grant to any Person a right to
receive any capital stock of the Company, nor take any other action, if such
transfer, grant or other action would cause the Company to be ineligible to be,
or to cease being, an S Corporation, and any such transfer or grant shall be
null and void ab initio and shall not be recognized by the Company.
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(c) Any Person purchasing or otherwise acquiring (by gift, inheritance,
bequest, purchase or otherwise) any capital stock of the Company from any
Shareholder, by accepting it, shall be deemed to be a party to this Agreement
and subject to all of the covenants, terms and conditions of this Agreement as
if such Person signed this Agreement. Promptly (but in any case within 10
business days) after such acquisition, such Person shall execute and deliver to
the Company an agreement in substantially the form annexed to this Agreement as
Exhibit "A" in which such new Shareholder agrees, among other things, to be
fully bound by, and subject to, all of the covenants, terms and conditions of
this Agreement and to be deemed a Shareholder hereunder for all purposes hereof
(the "Joinder Agreement"), but the failure of such Person to so execute and
deliver a Joinder Agreement shall not affect such Person's agreement under the
immediately preceding sentence or otherwise under this Agreement.
(d) Following receipt of notice from the Company that the Company will
elect to be treated as an "S corporation" for federal income tax purposes, each
Shareholder shall timely consent to such election and to timely elect or consent
to any other election as contemplated by Section 4.14 of the Indenture.
(e) Any Person who acquires shares of the Company's capital stock from
a transferor-Shareholder shall be obligated to make any repayments that would be
required to be made under this Agreement with respect to payments or
distributions made with respect to the shares so acquired.
(f) Each Shareholder acknowledges and agrees that, with respect to
periods for which the Company is an S Corporation, such Shareholder may be
liable for taxes with respect to items from the Company in excess of the
payments or distributions made to or for the benefit of such Shareholder
pursuant to this Agreement.
(g) The Shareholders acknowledge and agree that, if any Shareholder (a
"Defaulting Shareholder") fails to timely make any repayments pursuant to
paragraphs 4, 5 and 6 of this Agreement (including any amounts measured by
interest thereon as set forth in such paragraphs), such failure could result in
a Default and Event of Default under (i) the Indenture and/or (ii) other loan
arrangements to which the Company or its subsidiaries may from to time be a
party. Accordingly, in the event of such failure, the Defaulting Shareholder
authorizes each other Shareholder (none of whom shall be obligated to) to pay to
the Company, on behalf of the Defaulting Shareholder, any or all of the amount
owed by the Defaulting Shareholder to the Company pursuant to this Agreement.
The amount so paid to the Company on behalf of a Defaulting Shareholder shall be
a loan to the Defaulting Shareholder from the Shareholder(s) making such advance
and a capital contribution by the Defaulting Shareholder to the Company. Each
such loan shall be payable upon demand and shall bear interest at the prime rate
in effect from time to time as announced by European American Bank, plus 5%. All
costs of collection of such loans, including without limitation reasonable
attorneys' fees, shall be borne by the Defaulting Shareholder.
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(h) Nothing herein shall be construed as limiting the ability of any
Shareholders (including a transferor and transferee of shares of capital stock
of the Company) from entering into agreements among themselves relating to their
shares of capital stock in the Company. The Company shall not be bound by any
such agreement, but shall be a third party beneficiary thereof.
13. Legends. Each certificate representing shares of capital stock of
the Company held by any Shareholder shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A TAX PAYMENT
AGREEMENT (A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY). THE
HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE
OF THIS CERTIFICATE, AGREES TO BE BOUND BY
ALL OF THE PROVISIONS OF SUCH TAX PAYMENT
AGREEMENT."
14. Amendments and Waivers.
(a) The provisions of this Agreement may only be amended in a
writing signed (i) by or on behalf of (under proper authorization) Shareholders
owning shares of capital stock of the Company possessing at least 80% of the
voting power in the election of directors of all capital stock of the Company
and (ii) by an officer of the Company authorized to do so by its Board of
Directors; provided, however, that no amendment may reduce the obligations of
the Shareholders to make any repayments pursuant to paragraphs 4, 5 and 6 of
this Agreement (including any amounts measured by interest thereon as set forth
in such paragraphs), other than in connection with an public offering of common
stock of the Company to provide that the Shareholders who immediately prior to
the consummation of such public offering are (or if the liability were
determined at such time, would be) liable to make such repayments shall continue
to be the sole Shareholders obligated to make repayments after the public
offering.
(b) A waiver of any provision of this Agreement shall be
effective (i) if against the Shareholders generally, only if authorized by
action taken in writing by or on behalf of (under proper authorization)
Shareholders then owning of record shares of capital stock of the Company
possessing at least 80% of the voting power in the election of directors of all
capital stock of the Company or (ii) if against the Company, only if in writing
executed by an officer authorized to do so by the Company's Board of Directors;
provided, however, that so long as any Notes remain outstanding, no waiver shall
reduce the obligations of the Shareholders to make any repayments pursuant to
paragraphs 4, 5 and 6 of this Agreement (including any amounts measured by
interest thereon as set forth in such paragraphs), other than in connection with
an public offering of common stock of the Company to provide that the
Shareholders who immediately prior to the consummation of such public offering
are (or if the liability were
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determined at such time, would be) liable to make such repayments shall continue
to be the sole Shareholders obligated to make repayments after the public
offering. Any waiver granted shall not operate as a waiver of or with respect to
any subsequent or other failure. The failure of any party to enforce any
provision of this Agreement shall in no way be construed as a waiver of such
provision and shall not affect the right of such party to thereafter enforce
each and every provision of this Agreement in accordance with its terms.
15. Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of and be enforceable by, the parties hereto and
their respective heirs, beneficiaries, distributees, executors, administrators,
successors and assigns. This Agreement covers all shares of the capital stock of
the Company, whether owned at the time a Shareholder becomes a party to this
Agreement or thereafter acquired in any manner.
16. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law. The parties agree that (a) the provisions of this Agreement
shall be severable in the event that any of the provisions hereof are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provisions shall be
automatically replaced by other provisions which are as similar as possible in
terms to such invalid, void or otherwise unenforceable provisions but are valid
and enforceable and (c) the remaining provisions shall remain enforceable to the
extent permitted by law.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all such
counterparts taken together shall constitute one and the same agreement. It
shall not be necessary, in making proof of this Agreement, to produce or account
for more than one such counterpart.
18. Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given to the intended recipient (a)
when personally delivered, (b) upon delivery by overnight courier (receipt
confirmation requested) or (c) five business days after being mailed by
certified or registered mail (return receipt requested), in each case with
delivery charges and postage prepaid and addressed as follows (or to such other
address or to the attention of such other person as the recipient party has
specified by prior written notice to the Company):
If to the Company:
Sbarro, Inc.
000 Xxxxxxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: President
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If to a Shareholder:
To such Shareholder at such Shareholder's
address of record in the stock transfer
records of the Company.
Any notice, demand or other communication that may be given by a Shareholder to
one or more other Shareholders shall be deemed given if and when given to the
Company on behalf of such Shareholder(s) in the manner herein provided for
notices to be given to the Company. The Company agrees to forward copies of any
such notices, demands or communications promptly to the applicable
Shareholder(s) in a manner prescribed above and such notice, demand or other
communication shall be deemed given to the Shareholder recipient when same is
given (as provided above) by the Company.
19. Governing Law. This Agreement shall be governed by the laws of the
State of New York (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
This Agreement shall not be construed against any party by reason of its having
caused this Agreement to be drafted.
20. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto, and supersedes all prior agreements and
understandings, oral and written, among the parties hereto, with respect to the
subject matter hereof.
21. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments, and documents, as
any other party hereto reasonably may request in order to carry out the
provisions of this Agreement and the consummation of the transactions
contemplated hereby.
22. Submission to Jurisdiction. Each of the parties hereto irrevocably
consents to the jurisdiction of, and venue in, the federal and state courts
located in the Borough of Manhattan, City of New York and State of New York,
over any suit, action, or proceeding with respect to this Agreement, and hereby
waives, and agrees not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof, that such party is not subject
thereto or that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be appropriate or
that this Agreement may not be enforced in or by said courts, and each party
hereto irrevocably agrees that all claims with respect to such action or
proceeding shall be heard and determined in such a federal or New York state
court.
23. Remedies.
(a) Any Person having any rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law or equity.
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(b) It is acknowledged that it will be impossible to measure in
money the damages that would be suffered if a party hereto fails to comply with
any of the obligations herein imposed on such party (including, without
limitation, in the event of a failure by a Defaulting Shareholder to timely
comply with such Shareholder's obligations under paragraph 4 or elsewhere in
this Agreement which could cause a Default or Event of Default under the
Indenture and/or other loan arrangements to which the Company or its
subsidiaries may from time to time be a party) and that, in the event of any
such failure, an aggrieved party will be irreparably damaged and will not have
an adequate remedy at law. Any such aggrieved party shall, therefore, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
(c) The parties hereto agree that, if any party seeks to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing party or parties to such proceeding shall be entitled to receive
reasonable fees and expenses (including reasonable attorneys' fees and expenses)
incurred in connection with such proceedings.
24. MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR
DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED
HERETO.
25. Headings. The paragraph headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of any provision of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SBARRO, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President-Finance
/s/ Xxxxx Xxxxxx
----------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxxx Xxxxxx
----------------------------------------
Xxxxxx Xxxxxx
XXXXXX XXXXXX (1994) FAMILY
LIMITED PARTNERSHIP
By: /s/ Xxxxxx Xxxxxx
----------------------------------------
Xxxxxx Xxxxxx, General Partner
/s/ Xxxxxxx Xxxxxx
----------------------------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxxxx Xxxxxxxxxx
----------------------------------------
Xxxxxxxx Xxxxxxxxxx, not individually
but as trustee under that certain Trust
Agreement dated April 28, 1984 for the
benefit of Xxxxxxx Xxxxxx and her
descendants
/s/ Xxxxx Xxxxxx
----------------------------------------
Xxxxx Xxxxxx, not individually but
as trustee under that certain Trust
Agreement dated April 28, 1984 for
the benefit of Xxxxxxx Xxxxxx and
her descendants
-15-
EXHIBIT "A"
JOINDER TO
TAX PAYMENT AGREEMENT
THIS JOINDER to the Tax Payment Agreement, dated as of _____________,
1999, by and among Sbarro, Inc., a New York corporation (the "Company"), and the
Shareholders of the Company (the "Agreement"), is made and entered into by the
undersigned new Shareholder of the Company (the "New Shareholder"). Capitalized
terms used herein but not otherwise defined herein shall have the meanings set
forth in the Agreement.
WHEREAS, the New Shareholder is acquiring certain shares of capital
stock of the Company, and the Agreement and the Company require the New
Shareholder, as a condition to acquiring such stock and being recognized as a
Shareholder of the Company, to become a party to the Agreement;
NOW, THEREFORE, in consideration of becoming a Shareholder and being
entitled to the benefits of the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
New Shareholder hereby agrees as follows:
1. Agreement to be Bound. The New Shareholder agrees that the New
Shareholder is a party to the Agreement and shall be fully bound by, and subject
to, all of the covenants, terms and conditions of the Agreement, shall be
entitled to all of the benefits thereof and shall be deemed a "Shareholder" for
all purposes thereof. Without limiting the foregoing, the New Shareholder
acknowledges that the New Shareholder may be obligated to repay certain excess
payments or distributions made to or for the benefit of Shareholders pursuant to
the Agreement to the extent such payments or distributions relate to the shares
owned by the New Shareholder and that the New Shareholder may be responsible to
pay taxes on amounts in excess of amounts actually distributed to the New
Shareholder.
2. Successors and Assigns. This Joinder shall be binding upon, and
shall inure to the benefit of and be enforceable by, the New Shareholder and the
New Shareholder's respective heirs, beneficiaries, distributees, executors,
administrators, successors and assigns.
3. Governing Law. This Joinder shall be governed by the laws of the
State of New York (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
4. Headings. The paragraph headings contained in this Joinder are for
reference purposes only and will not affect in any way the meaning or
interpretation of any provision of this Joinder.
IN WITNESS WHEREOF, the undersigned New Shareholder has executed this
Joinder as of the date written below; however, this Joinder shall be effective
as of the time the undersigned New Shareholder first became a Shareholder of the
Company.
Dated: ___________________________ _____________________________________
