Common use of Restriction on Dividends and Repurchases Clause in Contracts

Restriction on Dividends and Repurchases. (a) To the extent the Company is a validly electing S corporation within the meaning of Sections 1361 and 1362 of the Code for any portion of a designated year, Investor consent shall not be required for the payment to the shareholders of any Allowable Tax Distribution. For purposes of this Agreement, the term “Allowable Tax Distribution” means dividends which are distributed to the shareholders of the Company to cover Federal and State income tax liabilities of each such shareholder emanating from the Company and Company Subsidiaries, attributed to such liabilities arising in a designated calendar year and paid no later than April 15 following the end of such year, and that are no greater in amount than the product of (a) the taxable income (as such term is used in Section 1363(b) of the Code, but including all items of income, gain, loss and deduction required to be separately stated under Section 1366(a)(1)(A) of the Code) of the Company for such year, times (b) the total of (1) the highest marginal personal federal income tax rate (the “Federal Rate”) in effect on December 31 of such year plus (2) the highest marginal personal State income tax rate (the “State Rate”) of any shareholder of the Company in effect on such December 31; but if the Company is not an S Corporation within the meaning of Sections 1361 and 1362 of the Code during all of such year, then the Allowable Tax Distribution for such year shall be prorated in accordance with the proration of the Company’s taxable income between the period when it was an S corporation and when it was not. For purposes of determining the Federal and State income tax liabilities of each shareholder of the Company, it shall be assumed that all shareholders shall be able to deduct for Tax purposes all deductions to which the Company is entitled, regardless of whether such shareholder is able to utilize such deductions in any Tax year. The Investor (and subsequent Holders who purchase the Purchased Securities or the Warrant Securities) shall have the right to challenge the amount of the proposed Allowable Tax Distributions to the extent it is believed such Allowable Tax Distributions exceed the amount necessary for the Company shareholders to pay their allocable share of income Taxes. No later than the earlier of (i)15 days prior to the Allowable Tax Distribution, and (ii) February 28 following the year end of each year that the Investor holds any of the Senior Notes, a duly authorized Senior Executive Officer of the Company shall certify as to the Federal Rate and the State Rate.