TAX INDEMNIFICATION AGREEMENT
This Tax Indemnification Agreement ("Agreement") is made this ___ day of
__________, 1998, by and among Columbia Sportswear Company, an Oregon
corporation (the "Corporation"), the undersigned shareholders of the Corporation
(jointly the "Shareholders" and each individually a "Shareholder") and the
undersigned spouses of certain Shareholders.
WHEREAS, the Corporation and the Shareholders believe that the Corporation
has been an "S corporation" (within the meaning of Section 1361 of the Internal
Revenue Code of 1986, as amended ("IRC")) for federal and Oregon income tax
purposes since February 1, 1988;
WHEREAS, the Corporation contemplates a public offering (the "Offering") of
its stock;
WHEREAS, it is anticipated that the Corporation's election to be an S
corporation will terminate as a result of the Offering; and
WHEREAS, in connection with the public offering the Corporation and the
Shareholders wish to provide for certain indemnifications with respect to the
Corporation's prior status as an S corporation.
NOW, THEREFORE, the parties agree as follows:
1. Consistent Reporting by Corporation. For all taxable years ended on or
before the day before the Corporation's S corporation election terminates, the
Corporation shall not, without the unanimous consent of the Shareholders, file
any amended income tax return or change any election or accounting method with
respect to the Corporation if such filing or change would increase any federal,
state, local (including but not limited to city or county) or foreign income tax
liability (including interest and penalties, if any) (collectively "Tax
Liability") of any Shareholder for any period.
2. Indemnification.
(a) Indemnification of Shareholders.
(i) Indemnification for Tax Liability. The Corporation hereby agrees
to indemnify and hold the Shareholders harmless from, against and in respect of
any Tax Liability incurred by them resulting from a final judicial or
administrative adjustment (by reason of an amended return, claim for refund,
audit or otherwise) to the Corporation's taxable income which is the result of
an increase or change in character of the Corporation's income during the period
it was treated as an S corporation.
(ii) Tax Adjustment. In the event that an indemnification payment
pursuant to Section 2(a)(i) exceeds the amount of the increase in the
Corporation's accumulated adjustments account (as defined in IRC ss. 1368(e)(1))
resulting from the adjustment (or to the extent such payment to the Shareholders
does not qualify as a distribution during the post-termination transition period
as defined in IRC ss. 1377(b)) such amount shall be increased by an amount
necessary to equal the Shareholder's additional Tax Liability related to such
amount.
(iii) Fees and Costs. The Corporation hereby agrees to reimburse the
Shareholders for such professional fees or other costs as are reasonably
necessary to properly defend the Shareholders in the event of an audit or review
of a Shareholder's income tax return during a year in which the Shareholders
were reporting corporate income by virtue of the S corporation election.
(iv) Indemnification for Additional Tax. In all events, and to the
extent not otherwise reimbursed, the Corporation hereby agrees that if any
payment pursuant to this Section 2(a) is deemed to be taxable income to a
Shareholder, the amount of such payment to the Shareholder shall be increased by
an amount necessary to equal the Shareholder's additional Tax Liability related
to such amount (including, without limitation any taxes on such additional
amounts) so that the net amount received and retained by the Shareholder after
payment by the Shareholder of all taxes associated with the payment is equal to
the payment otherwise required to be made.
(b) Indemnification of Corporation. If there is a final judicial or
administrative determination that the Corporation was not an S corporation for
all or any part of a taxable year beginning on or after February 1, 1988, and
ended on or before the day before the Offering (the "Non S Period"), each
Shareholder agrees to pay to the Corporation the amount by which (i) the net
aggregate Tax Liability of the Shareholder attributable to the pass through of
tax items from the Corporation had the Corporation been an S corporation
throughout the Non S Period exceeds (ii) the net aggregate Tax Liability of the
Shareholder as a result of non S corporation distributions made by the
Corporation to the Shareholder (including, without limitation, distributions
that would have qualified as distributions within the post-termination
transition period as defined in IRC ss. 1377(b) had the Corporation been an S
corporation during the entire Non S Period); provided, however, that the amount
payable by any Shareholder pursuant to this Section 2(b) shall not exceed the
net amount of refunds actually received by the Shareholder with respect to the
Non S Period that are attributable to Corporation tax items passed through to
the Shareholder or to Corporation distributions paid to the Shareholder. Each
Shareholder agrees, at the request of the Company, to take reasonable actions to
seek refunds of any excess Tax Liability paid by the Shareholder for the Non S
Period. The Corporation shall pay for the preparation and prosecution of such
refund claims.
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(c) Payment. Any payment required to be made pursuant to this Agreement
shall be paid within seven days after receipt of written notice from the
indemnified person that a payment is due hereunder.
3. Waiver of Invalid Election or Termination of S Status. If the Internal
Revenue Service determines that the Corporation failed validly or timely to
elect to be an S corporation or that the Corporation's status as an S
corporation was terminated inadvertently, and if the Corporation wishes to
obtain a ruling pursuant to IRC ss. 1362(f), each Shareholder agrees to make any
adjustments required pursuant to IRC ss. 1362(f)(4) and approved by the
Corporation's board of directors. Any such adjustments shall be subject to the
indemnification provisions of Section 2(a).
4. Miscellaneous. This Agreement shall be governed by Oregon law, without
regard to choice of law rules applied by Oregon courts. This Agreement shall be
binding on and shall inure to the benefit of successors and assigns of the
parties, including all persons to whom any Shareholder transfers stock of the
Corporation. Section headings shall not affect the interpretation of this
Agreement. This Agreement embodies the entire agreement of the parties with
respect to the subject matter contained herein. The parties hereto agree to take
all further actions necessary to effect the agreements contained herein.
CORPORATION: COLUMBIA SPORTSWEAR COMPANY
By:
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President
SHAREHOLDERS:
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Xxxxxxxx Xxxxx
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Xxxxxxxx Xxxxx, Trustee of Xxxxxxxx Xxxxx
Trust #1 u/a dtd December 15, 1997
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Xxxxxxxx Xxxxx, Trustee of Xxxxxxxx Xxxxx
Trust #2 u/a dtd December 15, 1997
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[Xxxxxxxx Xxxxx, Trustee u/a/d December ___,
1997 f/b/o Xxxxxxxx Xxxxx]
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Xxxxxxx Xxxxx
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Xxxx X. Xxxxx, Trustee u/a/d September 18,
1997 f/b/o Xxxxx X. Xxxxx
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Xxxx X. Xxxxx, Trustee u/a/d September 18,
1997 f/b/o Xxxxxx X. Xxxxx
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Xxxxx X. Xxxx
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Xxxxx X. Xxxx, Trustee of the Bany Family
Trust u/a/d July 31, 1997
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Xxxxx X. Xxxx, Trustee of Xxxxx X. Xxxx
Trust #1 u/a dtd December 15, 1997
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Xxxxx X. Xxxx, Trustee of Xxxxx X. Xxxx
Trust #2 u/a dtd December 15, 1997
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Don Xxxxxxx Xxxxxxxxx
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If I have any interest, under community property laws or otherwise, in the
shares of Corporation stock by my spouse, I hereby consent to the foregoing
agreement and agree to be bound by the provisions thereof.
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Xxxx X. Xxxxx
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Xxxxx X. Xxxx
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Xxxxxx Xxxxxxxxx
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